Cisco Systems, Inc. (NASDAQ: CSCO) began making routers before most people knew what they were or even how to use the Internet. On Feb. 16, 1990, the company held its initial public offering (IPO). Cisco’s IPO is considered one of the greatest of all time due to its explosive growth in subsequent years. It was the top company on Forbes’ list of best-performing IPOs during the 1990s. If you had invested $1,000 during Cisco’s IPO, you would have received 55.55 shares. Adjusted for stock splits, today you would hold 16,000 shares, and your investment would be worth $659,680 as of market close on February 14, 2018. This represents a compound annual growth rate (CAGR) of just over 26%.
Cisco was founded in 1984 by Len Bosack and Sandy Lerner. The couple was married, and both headed different departments at Stanford University. Bosack and Lerner were interested in connecting computers around the university to share information. Bosack was forced to resign in 1986 on charges of violating Stanford’s intellectual property copyright. Cisco went on to design its own multi-protocol router. In 1987, the company acquired the original license for the router it duplicated at Stanford and the two computer boards it was using at the time.
In 1987, Cisco received $2 million in funding from Sequoia Capital. John Morgridge joined the company as president and chief executive officer (CEO) and would lead until John Chambers took over in 1995. Over 40% of Cisco’s revenues by that time came from international markets. Cisco began making strategic acquisitions of networking companies, such as TransMedia Communications, Telesend, Netspeed and Stratacom. Cisco quickly became the worldwide leader in networking Internet traffic.
The Dot-com Bubble
On its first day of trading in 1990, Cisco’s shares rose 24%. The unprecedented gains didn’t end for another 10 years. The dot-com bubble, also known as the Internet bubble, was a huge period of speculation in Internet and Internet-related companies from 1997 to 2000. If you had sold your Cisco shares during the height of the dot-com bubble, your initial IPO investment of $1,000 would have been worth $1,264,000, representing a CAGR of over 104%.
As the dot-com bubble began to burst, Cisco lost 80% of its value from March 2000 to March 2001. As of February 2018, the company still trades nearly 50% below its all-time high.
The company began paying a dividend in 2011 after pressure from shareholders. Reinvestment of dividends would not have had a significant impact on your CAGR, since they have only been paid for a short period of time and missed the extremely high-growth years. In comparison, Coca-Cola has been paying a quarterly dividend since 1920, which has aided its annual growth rate by over 4.2%.
Cisco continues to be a world leader in networking and services related to communications and information technology. Since the recession of 2008 the company’s stock has doubled, it initiated its quarterly dividend program, and it has made massive share repurchases. CEO John Chambers resigned in July 2015 after serving in that role for the past 20 years. He now serves in the chairman emeritus role, and Chuck Robbins, who had been with Cisco for the past 20 years, serves as CEO and Chairman.
The company has been through years of restructuring that began in 2011. The new CEO has stated that Cisco will begin to move away from selling the individual switches and routers that made the company so successful. Instead, Cisco’s future will hinge on software and integrated parts and services. In general, the industry has been moving more towards cloud computing. Innovation has propelled Cisco through one of the greatest IPOs in history. With a market cap of more than $208 billion, Cisco has the financial means to become a leader in the next wave of innovation through cloud-based products and services.