Mortgage lending giant Rocket Companies is one of the newly public companies. The Detroit, Michigan-backed company completed its IPO last month (August), a transaction that allowed it to raise a good amount of cash to reinvest in expanding its businesses.
Rocket, founded by billionaire Dan Gilbert 35 years ago, is the name behind the popular Quicken Loans brand. The company provides home loans and other types of consumer loans such as auto financing. In addition to Quicken Loans, its other brands include Rocket Mortgage, Rocket Homes, and Rocket Auto.
Rocket Companies financial performance
Rocket is one of the beneficiaries of the Federal Reserve’s interest rate cuts designed to mitigate the economic impact of the COVID-19 pandemic. The low interest rates environment has spurred home loans demand, in turn boosting business at Rocket Companies.
The company’s loan origination volume hit $72.3 billion in the second quarter of 2020, the highest in its history. It generated revenue of $5.0 billion in the quarter, rising sharply from $937.5 million in a similar period last year. The company’s revenue for the six months through June spiked to $6.4 billion from $1.6 billion in a corresponding period in 2019.
The strong sales helped Rocket to turn a profit of $3.5 billion in the second quarter, compared to a loss of $53.7 million in the same period last year. Profit for the six months through June jumped to $3.6 billion, reversing a $352.7 million loss in the same period in 2019.
During an interview with CNBC on the day of Rocket Companies stock debut, CEO Jay Farner hinted that dividends for shareholders could be coming. However, the executive pointed out that the priority currently is reinvesting to grow the company.
Rocket wrapped up the second quarter with $3.7 billion in liquidity, comprising $1.0 billion in cash and $2.7 billion undrawn credit lines. The company continues to beef up its liquidity as it eyes acquisitions.
Rocket Companies’ market opportunity
The move by banks to mostly step away from mortgage origination and refinancing in the wake of the 2008 financial crisis created a gap in home loans market that Rocket has been swift to exploit. The company has originated $1 trillion in home loans since it started. Rocket Mortgage now stands as the largest mortgage lender in the US.
Rocket runs a digital lending platform. Digital lending platforms are becoming popular because they are faster and more transparent, which appeal to young borrowers. The global digital lending market is on track to reach $17 billion in 2025 from $4 billion in 2018. Rising internet penetration and growing access to smartphones are some of the factors fueling the growth of digital lending market.
For Rocket, operating a digital platform lets it reduce processing costs, which in turn enhances its profit margins. The company says it is the business of making Americans’ homeownership and financial freedom dreams come true.
Although investors may view Rocket as a mortgage lender, the company thinks of itself as a technology company in home loans business. Rocket aims to capture 25% share of the mortgage market by 2030.
Rocket Companies sets sights on acquisitions after successful IPO
Rocket Companies priced its stock at $18 apiece for the IPO. It sold 100 million shares, which helped it raise $1.8 billion in new capital. In an apparent signal of tepid demand, the company scaled down the IPO from the original plan to sell 150 million shares. Further, the company priced the IPO below the indicated range of $20 - $22. Rocket IPO could have raised as much as $3.3 billion at the originally indicated size and pricing.
Despite the IPO downsizing and low pricing, Rocket still stands at one of the largest US IPOs in 2020. Rocket stock rose as much as 26% on debut.
With the IPO done, Rocket now has its sights on acquisitions. The company intends to use its public stock as a currency to make bolt-on fintech acquisitions as it seeks to expand and diversify its business. The company said it would use its IPO cash to make acquisitions. Further, Rocket plans to sell bonds to raise as much as $2.0 billion in cash to pay off existing debt and acquisitions.
Who owns Rocket Companies?
Rocket Companies, also called Quicken Loans, is a subsidiary of Rock Holding, controlled by the Gilbert family. The holding company controls 79% of voting shares in Rocket Companies. That gives Gilbert strong decision-making power over major issues such as board director appointments. Gilbert’s net worth has soared to $48