Ever since Rocket Cos. (NYSE:RKT) went public earlier this month, there has been debate over whether the nation's largest home lender is really a fintech or more of a traditional consumer finance company. Shares of Rocket's initial public offering were priced at $18 per share, below the company's expected range of $20 to $22 -- a sign that investors were not viewing Rocket as a tech leader.
Susquehanna analyst Jack Micenko said he doesn't see Rocket doing anything different with technology than other home lenders, and that the company could struggle to keep its current margins through the interest rate cycle. Company founder Dan Gilbert acknowledged on CNBC: "That's one of the big points of contention. We think we're a technology company that happens to do home loans."
You can see his argument littered through the company's IPO prospectus. Here are six reasons why Rocket believes it's a major fintech company.
1. A history of building technology
In recent years, Rocket has become the No. 1 mortgage lender in the U.S., which has coincided with several tech initiatives at the company.
In 2015, Rocket launched the first end-to-end digital mortgage app, Rocket Mortgage, which allowed home borrowers to apply for a mortgage in just a few minutes on their smart phones. The app, which has a 4.9 rating in Apple's App Store, uses advanced algorithms and automation to enable people "to apply for a mortgage, interact with our team members, upload documents, e-sign documents, receive statements, and complete monthly payments." The platform's technology also has a texting feature so people can speak directly with lenders at the company.
Rocket has also developed other digital solutions. Amrock, a complementary platform to Rocket Mortgage, provides title insurance services, property valuations, and settlement services through digital appraisal and closing services.
2. Results to back it up
Rocket argues that its technology has led to the company's huge success in capturing more than 9% of the $2 trillion annual mortgage market. It also says the technology helps its team and clients close loans quicker than the rest of the industry.
In 2019, Rocket said that on average it completed 6.7 loans per month per team member, compared to the industry average of 2.3, citing data from the Mortgage Bankers Association. This year, Rocket claims this number has now grown to 8.3 loans per month. Most loans originated at Rocket close in 32 days or fewer from when the company receives mortgage documents from a client, a number that beats the 43-day industry average, the company claims.
3. A large tech team
Rocket employs a 2,500-person technology team that focuses on advanced algorithms, analytics and automation, and technology that can be integrated by partners outside the company. The company said it also has developed special tech teams to come up with new ideas and make the mortgage process more efficient. Rocket's Quicken Loans recently enjoyed a five-year stretch as Computerworld magazine's "Best Place to Work in IT" among companies with 5,000-plus employees.
4. Leveraging data
Algorithms are powered by data, and Rocket has loads of it. In 2019, the company had communications with more than 20 million potential clients. Using its technology and marketing specializations, the company said it has improved its conversion of client leads to closed loans, enabling Rocket to grow home loans without increasing client leads at the same rate. Rocket also does mortgage servicing for more than 1.8 million homeowners, and has access to 220 million unique consumer records and 150 million unique real estate records.
"Our technology and data science teams are proficient in leveraging this rich data to streamline the client experience, to improve the efficacy of our marketing campaigns, and to offer products and services suited to each client's specific circumstance," Rocket said in its prospectus.
5. Applying tech in other loan segments
While home loans are by far its biggest product, Rocket has also created technology platforms for other promising loan segments. Rocket Loans, the company's personal loan platform, uses analytics and algorithms to approve borrowers quickly, and plans to license the platform to other vendors. Rocket Homes, a website that helps potential borrowers search for homes and connect with real estate agents, received more than 180,000 unique visits per month in 2019, and "is poised to disrupt the U.S. real estate point of sale market."
6. Investing in and buying tech companies
Rocket previously invested in Lendesk and Edison, two mortgage start-ups that are helping to digitize the mortgage lending process in Canada, which the company says is not as far along with digital mortgages as the U.S. Gilbert told CNBC that the company's expertise in digitizing the mortgage process makes it an attractive place for other companies to land. "We figure that with the public stock, if we go out and acquire some businesses, we can help them really achieve things, because the mortgage was the hardest," he said.
Worth the risk
Rocket's stock has been quite volatile since opening, going from below $19 per share to $23.79 per share (at Thursday's close) in a matter of days. The stock could continue to go up and down for some time. I definitely like the stock below $20 per share and still feel it to be fairly priced at current levels, especially with its recent quarters of solid earnings. Technology company or not, it's still beating its peers in a big way in lots of important metrics, and there is plenty of market share for the taking, considering the fragmented industry.