Rocket Cos. management put a positive spin on its results,
But the company still lost $411 million in the period, compared with
However, the 6 cents per share loss for the first quarter beat Keefe, Bruyette & Woods and consensus estimates of a 9 cent per share loss at Rocket.
Its direct to consumer channel closed $9.8 billion at a 371 basis point margin in the first quarter, while the partner network (which includes the wholesale business) did $7.1 billion at an 83 basis point margin.
In the fourth quarter, Rocket produced $10.7 billion in direct to consumer and $8.4 billion from its third party originations business.
It is also a significant drop-off from one year ago, when it did $33.8 billion (400 basis point margin) in direct-to-consumer and $21 billion (96 basis point margin) from the partner network.
"Total revenue beat us by 6 cents, mainly on a combination of higher gain-on-sale income, higher servicing fees, and higher interest income," Bose George, an analyst at KBW, said in his report. The higher revenues were partially offset by expenses that came in 3 cents below us."
The first quarter closed loan volume was slightly higher than the $16.7 billion George forecasted.
Total gain on sale was 239 basis points, 22 basis points higher than the 217 basis points for the fourth quarter. That was also a beat over KBW's expectations of 220 basis points. "Price competition is lessening a bit and we're starting to see that translate in the gain on sale numbers," said Brian Brown, chief financial officer.
In the first quarter of 2022, Rocket's total gain on sale was 301 basis points.
Farner was upbeat about the current environment at Rocket.
"We're seeing a healthy purchase pipeline as we enter the spring home buying season," he said. "From March to April of this year, purchase approval letters are up 11% and are also trending much higher…compared to the same timeframe last year."
The company's rewards program usage, which includes
The number of Rocket accounts opened grew to 27.6 million as of March 31, up more than 2 million from the prior quarter, which Farner attributed to its Rocket Money business.
In April, Rocket introduced two additional cross-brand marketing programs, Buy+ and Sell+ in order to bring consumers into its ecosystem.
"Anybody who has run a business knows rolling something out is step one. Then there's the constant monitoring following up tweaking and there's resources necessary to make sure that you refine it so that it's giving you exactly what you want again, and we have a lot of work still to go there," Brown said.
When it comes to merger and acquisitions, no shortage of opportunities exist in the mortgage business, but the question is what Rocket would be buying, Brown said.
"On the positive side valuations have come down, but we're not interested in buying loan officers or shells with loan officers in it," Brown said.
Acquiring a company for its servicing portfolio could be interesting as Rocket is already an active bidder for packages.
However, "We're not necessarily willing to pay any type of premium just through an M&A transaction rather than just buying in the open market," Brown said. "But the balance sheet and capital position of this company allows us to be opportunistic."
The company lost $31.9 million on servicing, as it took a $398.3 million hit to the fair value of its portfolio, which ended the quarter at $524.8 billion. For the first quarter last year, it earned $820.6 million enhanced by a $454.4 million gain in the fair value.
The
"Banks were already hesitant to be in the mortgage space and already pulling back from the mortgage space," Brown said. "So this is something we view more as an opportunity…to take share."
It could also attract additional depositories to use its mortgage as a service outsource offering, Brown continued.
Things are looking up with regards to industry competition and capacity.
"From my perspective, capacity is coming out albeit maybe not as fast as we'd like it to, particularly on the loan officer front," Brown said. "But gain on sale margins are a good indication of capacity and they've been going up and the guide for Q2 says that we would expect them to go up as well."
For the second quarter, Rocket expects adjusted revenue to be in the range of $850 million to $1 billion as consumer demand for its products is coming in strong, company executives noted.
"We remain diligent in managing our expenses as we continue to monitor the broader environment with an eye towards profitability," said Brown. "On an absolute dollar basis, we expect Q2 expenses to be modestly higher than Q1, driven by an increase in variable expenses due to higher production and investments in marketing spend."
Even though Rocket was giving positive commentary about the current quarter, "it remains unclear if consensus earnings expectations will change as a result," KBW's George said.
