The Initial Public Offering
Microsoft, a global company founded in 1975 by childhood friends Bill Gates and Paul Allen, is a leading software developer. Microsoft's stock trades on NASDAQ under the symbol MSFT. On March 13, 1986, Microsoft set the IPO at $21.00 per share. Since the IPO, the stock has split nine times. This means if you had purchased one share at the IPO and held the stock over the years, you would own 288 shares today.
Splits One and Two
Microsoft's stock has undergone both 2-for-1 and 3-for-2 splits. Companies give shareholders an additional share of stock for each owned in a 2-for-1 split. In a 3-for-2 split, shareholders received an additional share of stock for each two owned.
Microsoft's first stock split, a 2-for-1 deal, was on September 18, 1987, 18 months and five days after the IPO. Trading at $114.50 per share prior to the split, the closing price on September 21, following the split, was $53.50 per share. The second stock split took place on April 12, 1990. The share price had increased to $120.75 and after the 2-for-1 split, traded at $60.75 per share. In just four years, the original value of one share had increased to four shares at three times the value, making an original $21.00 investment worth $243.00.
Splits Three and Four
The third and fourth stock splits were at 3-for-2, in June 1991 and June 1992. At the third split, the share price was $100.75 and closed the next day at $68.00 per share. The share value had increased to $112.50 per share by June 12, 1992 when the fourth split took place at 3-for-2. Following this split, shares traded at $75.75. An original share at this point had been converted into nine shares.
Microsoft's subsequent splits have all been at 2-for-1. The fifth split was on May 20, 1994 when the market valued shares at $97.75. Three days later, the stock was trading at $50.63 per share. The sixth split took place December 6, 1996 with shares at $152.875. On December 9, the stock closed at $81.75. Closing prices were $155.13 before the seventh split on February 20, 1998 and $81.63 on February 23 following the split. By March 26, 1999, the day of the eighth split, share prices had increased to $178.13. On March 29, MSFT was trading at $92.38. After eight splits, one original share had become 144.
Traditionally, companies have issued stock splits to attract new investors with the lower share prices following a split. This has no significance on intrinsic value, though. For example, in 2003 Microsoft stock split for the ninth time at 2- for-1. The stock was trading at $48.30 per share prior to the split. The closing price after the split was $24.96 per share, almost half.