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A thread about $RKT
Rocket Companies IPOd at $18 on Aug. 5 and ran to a high of $34+ in anticipation of their first earnings report.
Despite the sell-off that followed, the earnings were impressive:
Q2 Revenue: $5B (+437% YOY)
Net income: $3.5B (net loss of $54M last year)
Rocket Companies IPOd at $18 on Aug. 5 and ran to a high of $34+ in anticipation of their first earnings report.
Despite the sell-off that followed, the earnings were impressive:
Q2 Revenue: $5B (+437% YOY)
Net income: $3.5B (net loss of $54M last year)
$RKT is America's largest mortgage originator. They have 9.2% of a $2.2 trillion market, and project to capture 25% by 2030.
They sell over 90% of their loans to companies such as Fannie Mae. They make most of their money on originator fees, servicing, & title insurance.
They sell over 90% of their loans to companies such as Fannie Mae. They make most of their money on originator fees, servicing, & title insurance.
Unlike most of the big banks, $RKT is entirely digital. No capex on brick & mortar locations. Besides, customers hate lengthy processes, & the numbers prove it
76% retention for refinancing (Industry Avg of 22%)
JD Power Customer Satisfaction Rating of 74 (Industry Avg of 16)
76% retention for refinancing (Industry Avg of 22%)
JD Power Customer Satisfaction Rating of 74 (Industry Avg of 16)
$RKT digital model gives the company a massive advantage in efficiency, and thus scalability
The average loan takes just 32 days to close, which is 25% faster than competitors
It also maintains a 0.5% fee for the majority of cases whereas competitors can charge as high as 1%
The average loan takes just 32 days to close, which is 25% faster than competitors
It also maintains a 0.5% fee for the majority of cases whereas competitors can charge as high as 1%
CEO Jay Farner noted that $RKT best-ever quarter was achieved with more than 98% of employees working from home!
COVID has accelerated the digitization of all industries. This is what gives $RKT its edge. It is pioneering digitization & convenience in the mortgage industry.
COVID has accelerated the digitization of all industries. This is what gives $RKT its edge. It is pioneering digitization & convenience in the mortgage industry.
$RKT recently partnered with $INTU to integrate its API into Mint, which is a personal finance platform with 15M+ members
Users will be able to refinance in as little as eight minutes instead of days or weeks using $RKT API. Convenience alone will drive market share in the space
Users will be able to refinance in as little as eight minutes instead of days or weeks using $RKT API. Convenience alone will drive market share in the space
They recently launched $RKT Pro Insight to offer real estate agents updates on their clients’ mortgage status.
They also struck an advertising deal with http://realtor.com where homebuyers will see advertisements allowing them to be pre-approved in as little as 20 minutes.
They also struck an advertising deal with http://realtor.com where homebuyers will see advertisements allowing them to be pre-approved in as little as 20 minutes.
So, what gives? Why did $RKT sell-off following +400% YOY growth in Q2?
Post-2008, the US govt. tightened lending standards & forced banks to increase their balance sheets. This created a vacuum for "non-bank" entities (like $RKT) to capture the riskier loans on the market
Post-2008, the US govt. tightened lending standards & forced banks to increase their balance sheets. This created a vacuum for "non-bank" entities (like $RKT) to capture the riskier loans on the market
As @TheEconomist explains “servicing mortgages can become capital-intensive if a mortgage goes bad... the servicing firm must carry the costs until the mortgage is repaid"
Bad mortgages are certainly a risk for $RKT amidst a pandemic, or even in the months & years following one.
Bad mortgages are certainly a risk for $RKT amidst a pandemic, or even in the months & years following one.
$RKT has a held-for-sale loan portfolio of $12B. Wells Fargo $WFC holds a $20B portfolio. However, Wells Fargo is a much larger company with considerably more assets.
While this could be a case for $RKT being undervalued, it also speaks to them being potentially over-leveraged.
While this could be a case for $RKT being undervalued, it also speaks to them being potentially over-leveraged.
Critics say $RKT is dependent on volume / low interest rates buffed numbers
$RKT closed $32B in volume in Q2 '19, versus $72B in Q2 '20
However in '19 they lost $54M vs. a profit of $3.5B in '20
This speaks to $RKT ability as a digital company to greatly minimize scaling costs
$RKT closed $32B in volume in Q2 '19, versus $72B in Q2 '20
However in '19 they lost $54M vs. a profit of $3.5B in '20
This speaks to $RKT ability as a digital company to greatly minimize scaling costs
To summarize, I think $RKT is a great stock with huge growth potential & staying power with its customers.
In the long-term, it's built for the future of mortgage & is well-differentiated.
In the short-term, there are valuation & leverage concerns that may tame price action.
In the long-term, it's built for the future of mortgage & is well-differentiated.
In the short-term, there are valuation & leverage concerns that may tame price action.
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