It’s hard to turn $10,000 into $1 million, but if you’re looking, one of the best places to find such an opportunity is the IPO market, where investors can get a chance to buy a company’s stock in its early years.
It takes time — maybe a decade or more — but these magic multipliers happen. And besides, aren’t hundred-fold returns worth the wait?
Many optimistic investors hope Facebook might be the next 100x darling. Whether it will remains to be seen, but we might get a better idea by examining other former IPO breakouts.
When looking at past examples of IPOs that hit the “Franklin multiple,” you see some interesting themes. The companies started with a focus on a core market, but they continued to fuel breakout growth — revenues ramps often hit 100%-plus year-over-year — through both innovation and entering new categories and markets.
The following five IPOs mostly fit the mold — with their own unique twists — and eventually turned $10,000 investments into $1 million:
Current return on $10,000: $1.3 million
In 1994, Jeff Bezos left a high-paying job at a hedge fund and took his car from New York to Seattle. Along the way, he created the business plan for an innovative ecommerce site for books, Amazon.com (NASDAQ:AMZN). In 1996, the year before the company went public, Amazon.com only generated sales of $15.7 million and absorbed a net loss of $5.8 million.
However, in May 1997, Bezos raised $54 million by taking the company public, and the stock spiked 30% on its first day of trading.
The company faced plenty of competition, including Barnes & Noble‘s (NYSE:BKS) online bookstore. But Amazon eventually evolved beyond its bookstore roots and became a gorilla of e-commerce and one of brick-and-mortar retailers’ greatest threats. The company also launched the Kindle e-reader in 2007, and by 2010, AMZN was a 100-fold returner.
The Kindle since has evolved into the Kindle Fire tablet and helped spark Amazon to further gains.
Current return on $10,000: $1.5 million
Michael Dell already was building computers at just 15 years old, and it turned into a fast-growing business when he attended the University of Texas. Of course, he dropped out to launch his self-named company, Dell (NASDAQ:DELL).
The company rode the surge in the PC revolution and it came public in 1988. Within just nine years, the stock would snag a 100X return.
But the key to Dell’s success wasn’t just the products — it was a change in the company’s business model. To reduce its inventory costs, Dell adopted a built-to-order manufacturing model, which resulted in much higher cash flows and profits.
Current return on $10,000: $1.7 million
Steve Jobs, Steve Wozniak and Ronald Wayne formed Apple (NASDAQ:AAPL) around their hand-built computers in April 1976, and Jobs and Wozniak incorporated it in January 1997. By December 1980, Apple came public at a $1.79 billion valuation.
While Apple was the pioneer of the PC revolution, the company stumbled during the 1980s, and Jobs was kicked out. It would not be until the late 1990s that Jobs would return, and Apple would change the world with breakout products like the iPod, iPhone and iPad, setting up AAPL’s fantastic charge through the aughts.
Still, it wasn’t until early 2011 that investors would’ve received $1 million on a $10,000 investment. Throw in Apple’s scorching run since then, including Wednesday’s boost to more than $600 per share, and those same investors would be looking at about $1.7 million.
Current return on $10,000: $3.5 million
Microsoft (NASDAQ:MSFT) pulled off its IPO on March 13, 1986. According to the prospectus, the company had some risks, especially its heavy dependence on IBM’s (NYSE:IBM) PC platform. Investors didn’t seem to mind.
A famous piece in Fortune showed that Bill Gates did not even want to go public. After all, he did not get much venture capital, and the pretax profit margins were 34%. However …
“By 1987, Microsoft estimated, over 500 people would own shares, enough to force the company to register with the SEC. Once registered, the stock in effect would have a public market, but one so narrow that trading would be difficult. Since it would have to register anyway, Microsoft might as well sell enough shares to enough investors to create a liquid market, and Gates had said that 1986 might be the year.”
So, the company went public, pricing at $21 and finishing its first day of trading at $31.25. Microsoft raised about $61 million on the deal.
About a decade later — thanks to the success of both its Windows operating system and its Office suite of business software — Microsoft’s shares had returned 10,000%.
Microsoft eventually branched out into the Internet, media, music and video game consoles, and an initial $10,000 MSFT investment now would be worth about $3.5 million.
Current return on $10,000: $10.3 million
Yes, even stodgy blue chip Wal-Mart (NYSE:WMT) once was a fresh new face to the public markets.
Early on, Wal-Mart found out that growth isn’t cheap in the retail business, and in the late 1960s it almost went bust because of problems with its financing. At the time, new locations could run Wal-Mart about $500,000 — no small sum back then.
The company’s legendary founder, Sam Walton, thought an IPO would be the best solution. In 1970, he went to Wall Street and sold 300,000 shares at $16.50 each. At the time, the company was growing quickly — in just one year, from 1968 to 1969, revenues soared from $12.7 million to $21.3 million.
It took another couple decades, but by the end of the 1980s, the stock landed investors a 100-fold return. And thanks to new store concepts and a world-class logistics system and information technology network, Wal-Mart has become a thousand-fold phenomenon — making a $10,000 initial investment in WMT worth about $10.3 million today.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”, “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.