Rocket Companies (RKT) is the principal business with a diversified business holding including Rocket Mortgage as their flagship business ( further segmented into Quick Loans, Amrock, Rocket Loans, Rock Connections, and lowermybills domain) + Extension services (Rocket Auto + Rocket Loans).
According to S-1 filings, their flagship Rocket Mortgage (RM for short) business as of June 2020 taps into a $2 trillion market, where it continues to grow it’s market share from 1.3% in 2009 to 9.2% in Q1 of 2020. To date, RM has serviced $1 trillion in home loans. RM further expanded into Real estate, auto, personal lending market in order to stay diversified and maintain a stream of service for their clientele -> high customer retention and use of ancillary services. RM’s primary mode of consumer engagement is via their App, which can process/qualify applicants entirely through the mobile platforms and integrates a string of complimentary services that allow customers to manage, review, and pay for their loans.
In 2019, RM recorded 6.7 loans per month per production team member, beating the average 2.3 loans for competitors (Data via Mortgage Bankers Association). In 2020, in their first quarter, they achieved growth with 8.3 loans on average (a 20% year to year growth).
Since inception, Rocket Companies + holdings have spent $5B in advertising to lay a solid foundation and awareness to the public -> making them the largest provider of loans in the nation (they process significantly more loans than most traditional banks according to their S1 filing research data). Ad campaigns include partnerships with NCAA sporting events, PGA Tours, military charity events, Superbowl ads, etc.
Company Health Overview + Market:
Their business is extremely healthy, with 63% client retention across all services and 76% retention in refinance loan clients in 2019 -> roughly 3.5x the industry average for retention. In 2020, ytd average was 75% with COVID actually improving their business traffic + retention ( we will get into this later).
75% of their home loans customers are first-time homeowners, of which a majority are millennials -> increased chance of further business opportunities.
RM online site, which began in 2016, have seen large jumps each year in visits. From 18.2 M in 2017 -> 59.4M in 2018 -> 73.8M in 2019. Their marketing is working.
Because of diversification, their total addressable market is $5.5T, of which the percentage of total market share was not reported as averages can not be made across the different holdings. Imagine taking hold of just 2% of this market.
COVID-19 Impact (The BIG One)
Look, I know a lot of people are saying they are going to get rkt’ed (all puns intended) by covid via forbearances/foreclosures. Here are my findings in the S1:
They actually experienced growth, and record numbers even in March-June. They reported that CARES Act had a negative impact on them, and as of June 30, 2020, the forbearance rate was 5.1% of total clientele loans. How did they mitigate damages? They increased liquidity, $2.6B in cash and $1.22B in undrawn lines of credit via major credit lenders. Leveraging a diversified holdings, Rocket Companies seems like they are going to be in good shape even with the worsening conditions as it pertains to loans and real estate.
They stated in their S1 that liquidity and cash protection is their top priority. As of June 2020, they also negotiated a $1B in senior unsecured revolving credit w/ 3 year tenor with partnering companies.
Financials (Balance Sheet Style):
S1 Financials Ending in March 31st are strong – $1.36B net rev, $1.26 net expenses -> $100M net profit ; Net assets $21.31B + $2.25B cash/cash equivalents ; Adjusted EBITDA 919M
Net liabilities $17.6B with Net Equity $3.64B
Net Assets – Net Liabilities = Worth
-Written by Reddit User u/TripleBrain