This week, Rocket Companies prepares to blast off towards their IPO, expected to be the
biggest of the year to date. Today, I’ll take a deeper look at the company and share
some thoughts from an investor’s perspective. Stay tuned.
Welcome to Healthy, Wealthy, and Wise…I’m Kevin, and today we’re going to follow up
this week’s episode of IPO this Week where we gave an introduction to all the companies
that were scheduled to go public this week and included the headliner Rocket Companies,
the biggest IPO of the year so far. For this video, we’ll take a closer look at the company
so that you can see if it makes sense for you. As a heads up, this video is not meant
to advise you in any way to act on the stock, it’s purpose is purely informative.
Alright, let’s see if this rocket can make it to the moon… don’t you just hate these
puns?? I’ll stop For a little background, the company is based
in Detroit, Michigan and was founded by current Chairman Dan Gilbert in 1985 as Rock Financial.
In 1999, Intuit, who you probably are aware of because of their products like QuickBooks,
TurboTax, and Quicken bought Rock Financial and the company was renamed Quicken Loans.
In June 2002, Dan Gilbert led a small group of private investors in purchasing the Quicken
Loans subsidiary back from Intuit for $64M. When the decision was made to take the company
public, it did so with the intention to use the Rocket Companies name. So if you’ve
been wondering why the company is now called Rocket instead of Quicken Loans, this might
help. Interestingly, the company licenses the "Quicken
Loans" name and trademark from Intuit on an exclusive, royalty-bearing basis for use in
connection with their business in the United States. Although the license is perpetual,
Intuit may terminate the license agreement under various circumstances which would keep
the company from using the "Quicken Loans" name and trademark; obviously a transition
to a different brand name would be time consuming and expensive. To limit any future issues,
the company entered into an agreement with Intuit that gives the company full ownership
of the "Quicken Loans" brand in 2022 in exchange for certain agreements, subject to the satisfaction
of certain condition that I don’t know the details of.
As of now, the flagship business, Rocket Mortgage, is the industry leader, and according to its
registration statement, have provided more than $1 trillion in home loans since inception
while growing market share from 1.3% in 2009 to 9.2% in the first quarter of 2020, a Compound
Annual Growth Rate of 19%. In 2015, the Rocket Mortgage online platform
revolutionized the mortgage process as the first truly end-to-end digital experience
and it did so by leveraging years of technology investment and innovation. Their digital solution
utilizes automated data retrieval and advanced underwriting technology to deliver fast, tailored
solutions to clients. Alongside the online platform, they also have the Rocket Mortgage
app, which clients can use to apply for a mortgage, interact with team members, upload
documents, e-sign documents, receive statements, and complete monthly payments.
The popularity and success of the company is likely due to the speed and simplicity
contained within their software platform as well as their centralized operations. Rocket
Mortgage believes it is the simplest and most convenient way to get a mortgage. And first
time home buyers, and in particularly millennials, seem to agree as the company reports that
of the clients that applied using the online platform or app, 75% were first-time homeowners
with a significant percentage of those being millennials.
And that simplicity really drives the experience as the company’s mortgage technology facilitates
the origination, underwriting, closing, and servicing process behind the scenes of the
client. The company also has worked on processes to retain clients and identify new ones through
Rock Connections, their sales and support organization, which supports both Rocket Mortgage
and several other external partners through their technology.
The company touts that their technology provides their client specialists visibility into the
loan process which enables loans to close faster and more efficiently than industry
averages. In 2019, Rocket reported closing 6.7 loans per month per average production
team member, compared to the industry average of 2.3 according to the Mortgage Bankers Association.
In 2020, their year to date average has grown to 8.3 loans per month. This has earned the
company recognition as #1 for Mortgage Origination by J.D. Power for the past 10 years.
Being a company of scale with significant digital-first brand recognition, Rocket reaches
potential clients through highly targeted marketing strategies. They utilize data a
gathered from inquiries, applications and ongoing client relationships to optimize digital
performance marketing to reach the right clients with the appropriate solutions. With their
focus and growth in digital marketing, in 2017 Rocket acquired Core Digital Media, a
top social media and display advertiser. Through the use of specialized marketing capabilities,
they were able to generate inquiries from more than 20 million potential clients in
2019. While the company’s bread and butter has
been in mortgages, they have expanded into complementary industries, such as real estate
services, personal lending, and auto sales. In 2010, they made a strategic decision to
invest in loan servicing. Servicing the loans that they originate provides the company with
an opportunity to build long-term relationships with a seamless experience. This has lead
to strong levels of client retention: in 2019 they reported overall client retention levels
of 63%, and refinancing retention levels of 76%, which is approximately 3.5 times higher
than the industry average of 22%. In 2020, their year to date average has grown to nearly
75% overall client retention. Additionally, they have been recognized as #1 for Mortgage
Servicing by J.D. Power for the past six years—which covers every year they’ve been eligible
for the award. The opportunity for further growth is significant,
particularly as the U.S. residential mortgage market remains highly fragmented. As the largest
mortgage originator according to Inside Mortgage Finance, the company serves 9.2% of an over
$2.0 trillion annual market. As adoption of online mortgages increases, the company expects
to drive further market share growth. Their strategy for growth is to grow partnerships
with other preeminent companies and professionals whose clients benefit from their solutions
including mortgage professionals in the Quicken Loans Mortgage Services network and State
Farm and Farmers agents. They also have marketing partnerships with Fortune 500 companies such
as American Express, Intuit and Schwab. To support this effort, the Rocket Mortgage technology
was leveraged to develop Rocket Professional, a proprietary platform that enables partners
to offer the company’s best mortgage options to their clients and provide real-time management
of loan applications. Another piece of the puzzle for obtaining
speed and efficiency in their platform is enabled by their subsidiary Amrock, which
is a leading provider of title insurance services, property valuations and settlement services.
This business complements the mortgage origination platform with digital appraisal and closing
services integrated throughout the Rocket Mortgage technology and processes. Again,
another example of building on developing a seamless experience for their clients, from
origination through closing. Some of their other businesses include Rocket
Homes, a home search platform and real estate agent referral network that helps match Rocket
Mortgage clients with highly rated agents. Rocket Homes participated in more than 30,000
real estate transactions in 2019. Rocket Loans, their prime personal loan business, underwrote
approximately 25,000 closed loans in 2019 which was a year-over-year increase of over
30%. Rocket Auto, their auto sales business facilitated nearly 20,000 used car sales in
2019, in just its second full year of operation. The company also believes their success in
the United States can be leveraged in the Canadian market and have they have invested
in Lendesk and Edison Financial, two Canadian mortgage business startups.
And before we get into some numbers, I’ll mention one more recognition and that is FORTUNE
magazine named the company to their list of "100 Best Companies to Work For" for 17 consecutive
years. So they’ve definitely garnered some good publicity in the recognitions they’ve
received. As far as financials, for the year ended December
31, 2019, they netted total revenue of $5.1 billion, 22% higher than the previous year.
Net income attributable to Rocket Companies was $893.8 million, representing a 46% growth
from the prior year. Over the same time period, Adjusted Revenue was $5.9 billion, Adjusted
Net Income was $1.3 billion, and Adjusted EBITDA was $1.9 billion.
As they proceed with their IPO, they have listed their ticker as RKT. They expect to
raise about 3.2 billion dollars on shares being priced at the midpoint of a proposed
20 to 22 dollar range. With 150 million shares to be offered, this would result in a whopping
42 billion dollar market cap deal. At this time, the company does not expect to pay dividends
in the foreseeable future. We expect trading to begin this week, with
indications being most likely on Thursday. Unless someone beats me to it, I’ll update
when trading actually begins in the comments section.
I have to say that I personally love the idea of a digital approach in applying for a mortgage
online. While I haven’t applied for a mortgage this way in the past, I would absolutely consider
it in the future. As a company going public, I like that they are established, profitable,
and a leader in their industry. On the other side of the coin, there are some concerns
that come to mind, one is that it is possible, maybe even likely, that there will be significant
increase in delinquencies due to the pandemic’s effect on the economy. Also, the business
is considerably impacted by interest rates, which as we are know are low and will stay
low for some time and this could limit margins. And then from a competition standpoint, there
are lots of options for mortgages and loans which would generally make this a tough industry,
and yet I think this brand, coupled with their history of growth, would seem to be one that
could make further gains in market share in the stay at home economy. This really is an
initial public offering to keep an eye on. So there you have a little more thorough look
at Rocket Companies. Are you blasting off…I mean are planning to take a position? Let
us know in the comments. We’ll be back early next week with our IPO This Week feature to
cover next week’s upcoming IPOs. I hope you’ve found this video helpful, and if
you did, please hit that like button, share it with your friends, and subscribe to the
channel with that notification bell turned on so you don’t miss any upcoming episodes.
Thank you for watching and until next time, have a great day!