Rocket Companies IPO: A Good Time For Mortgage Companies?

Rocket Companies Inc., a mortgage company run by billionaire Dan Gilbert and best known for its subsidiary Quicken Loans, has released terms for its upcoming IPO (expected to price Aug. 5). The company will sell 150 million shares with the possibility of selling an additional 22.5 million more at a maximum price of $22, and will thus raise up to nearly $3.8 billion. This company could be worth $40 billion after this IPO, making it the largest of 2020.

Bigger certainly does not mean better when it comes to IPO, as a quick glance at Uber (NYSE:UBER) can tell you. But Rocket Companies Inc. is in a good position to take advantage of trends caused by the coronavirus and has solid financial numbers to boot. The big question is whether the positives can justify such a large valuation.

Mortgages And COVID-19

Most businesses have been devastated to some degree by the coronavirus pandemic and its result on the economy. But in Rocket’s case, one simple statistic reveals a great deal about its business. The company recorded a net revenue of $1.36 billion in the first three months of 2020. But over the next three months, as businesses in America struggled, Rocket’s preliminary estimates for its April to June revenue is over $5 billion.

Rocket explains in its S-1/A that this gargantuan increase is due to “an increase in gain on sale margin,” which in turn was fueled by “generally favorable market conditions and the low interest rate environment which led to increased demand for mortgages and capacity constraints in the industry.” In summation, this is a really good time for those who can afford it to get a mortgage as COVID-19 is keeping interest rates low.

Those low interest rates however mean that banks find mortgages to be a riskier bet, with Fortune reporting that banks are simply not lending money to those in a more difficult situation as opposed to charging them higher interest. It is reasonable to assume that those who cannot get mortgages through a bank will then turn to mortgage companies like Quicken Loans.

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Euan Jones has not disclosed any positions or interest in this company.

Disclaimer: The opinions in this article are for informational and educational purposes only and should not be ...

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