Unveiling Sinusoidal Trend of Rocket Companies’ Share Price

  • Sep 16, 2020 AEST
  • Team Kalkine
Unveiling Sinusoidal Trend of Rocket Companies’ Share Price

Summary

  • Share price of Rocket Companies, Inc. (NYSE:RKT) has been on a roller-coaster ride ever since its IPO in early August.
  • The Company reported a robust second quarter performance, witnessing a 126% YOY increase in closed loan origination volume with revenues up by 268% and net profit increased by 3,458% QoQ.
  • The Company holds a firm footing in the US mortgage market with revenue and profitability mostly driven by volume and sale margin. 
  • Given the fragile state of United States’ residential mortgage lending industry due to the pandemic, future path of mortgage financing relies on borrowers’ preference to take benefit from record-low interest rates.

Share price of Rocket Companies, Inc. (NYSE: RKT) has been on a roller-coaster ride ever since its Initial Public Offering (IPO) in early August. The Company has witnessed a high of US$34.37 and low of US$18.31 within days of commencing trading at US$24.75 per share.  

Let us dig deeper to know more about Rocket Companies, Inc.

Rocket Companies, Inc. operates as a leading technology based real estate, mortgage, and financial services provider through its multiple subsidiaries. 

Source: Company IPO Prospectus

Rocket serves client base through more than 20k team members across the United States. Rocket Mortgage, which is the Company’s flagship entity, has featured for 17 consecutive years in the “100 Best Companies to Work For” list by Fortune magazine.

Rocket Mortgage has provided more than US$1 trillion in home loans since establishment. Moreover, it holds around 9.2% market share of the ~US$2.0 trillion annual market as of Q1 2020, demonstrating a CAGR of 19% over 10 years, according to its prospectus. The company also highlighted that 75% of consumers are first-time homeowners and/or Millennials applying for loans via its online platform or app.

The Company operates a digital mortgage app that allows its client base to apply for a mortgage, connect Rocket’s team members and share documents. The platform's technology has a texting feature that allows people to communicate directly with the lenders. The Company also owns Amrock, which offers title insurance services, property valuations, and settlement services through digital appraisal and closing services.

On 10 August 2020, Rocket Companies closed the Initial Public Offering with more than 100 million Class A common stock at an offering price of US$18.00 per share. The Company received proceeds of ~US$1.76 billion before expenses.  

The Company made a senior note upsizing and pricing announcement on 9 September 2020. The share price surged by 2.86% post the announcement, only to fall back more than 1% in the next two consecutive days each. 

In the second week of September 2020, the Company announced that its subsidiaries, Quicken Loans, LLC and Quicken Loans Co-Issuer, Inc. proposed to co-issue and sell ~US$2 billion worth of senior notes due 2029 (US$750 million) and senior notes due 2031 (US$1.25 billion). The note issuers will use net proceeds from the offering to redeem all of the outstanding 5.75% Senior Notes due 2025 worth US$1,250.0 million aggregate principal amount and pay any related fees and expenses.

Record Closed Origination Volume in Second Quarter

The Company declared its second quarter results ended 30 June 2020 in the first week of September. Share price surged by 1.95% only to fall back by 15.36% next day. Prices continued to fall by more than 7% in next two consecutive days each. 

According to the announcement, Rocket generated US$72.3 billion in closed loan origination volume (up 126% YOY) and net rate lock volume of US$92.0 billion (up 170% YoY). The volume drove company’s net gain on sale of loans excluding fair value of MSRs to reach US$4.08 billion. Total revenue was recorded at US$5.03 billion, with an overall profit of ~US$3.46 billion. On quarter over quarter, total revenue jumped by 268% while net profit increased by 3,458%.

The growth was driven by higher variable compensation, coupled with an increase in team members in production roles to support growth. The Company also gained considerably because of better gain on sale margin compared to previous levels because of favourable market conditions that boosted demand for mortgages and coerced capacity constraints in the industry.

Jay Farner, CEO of Rocket Companies, highlighted that second quarter performance proved very strong, driven by the hard work put in by team members along with clients’ dedication. The efficiency of the mortgage origination platform also supported the Company to provide scalable services to meet the phenomenal demand.

The business performance showcased unparalleled growth in the second quarter than any other quarter in the Company’s 35-year history, despite more than 98% of team members working remotely. Mr Farner also mentioned that the Company is on track regarding its plan of achieving a 25% market share by 2030.

Third Quarter Outlook

In Q3 2020, the Company continued to experience strong consumer demand for home loans, and as of 31 August 2020, it recorded ~96k clients on a forbearance plan related to the pandemic, or 4.7% of its total servicing portfolio.  

Rocket expects third quarter performance to fall within the following ranges:

  • Net rate lock volume is expected in the range of US$93 billion to US$98 billion, representing an improvement of 98% to 108% over previous comparable period (PCP)
  • Closed loan volume is anticipated in the range of US$82 billion and US$85 billion, an increase of 105% to 112% over PCP.
  • Gain on sale margins is expected between 4.05% and 4.30%, an improvement of 23% to 31% over PCP.

Good Read: An Annual Report a Day Keeps the Losses Away; Get the Most from Reading an AR

Conclusion

The Company holds a firm footing in the US mortgage market. Rocket's revenue and profitability have been mostly driven by volume and sale margin. The Company also highlighted a stable third quarter outlook.

However, the US residential mortgage finance industry has been facing challenges amid the pandemic and seems in need of an emergency liquidity facility to bridge money loss due to missed home loan repayments. At this juncture, future path of the mortgage financing industry relies on borrowers’ preference to take benefit from record-low interest rates.

 


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This website is a service of Kalkine Media Pty. Ltd. A.C.N. 629 651 672. The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine Media does not in any way endorse or recommend individuals, products or services that may be discussed on this site. Our publications are NOT a solicitation or recommendation to buy, sell or hold. We are neither licensed nor qualified to provide investment advice.

 

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