Shares in Rocket up After Hours as Investors Roll with $233M Q4 Loss

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Paper losses on its mortgage servicing rights portfolio pushed Rocket Companies into the red during the final quarter of 2023, but the lending giant put a positive spin on its Q4 and 2023 results saying it’s racked up three consecutive quarters of positive adjusted earnings in a difficult market.

Rocket reported a $233 million fourth quarter net loss Thursday, driven largely by paper writedowns in the value of the company’s $509 billion mortgage servicing rights portfolio. Q4 revenue was up 44 percent from a year ago, to $694 million, and the company trimmed expenses by 5 percent, to $937 million.

For the full year, Rocket racked up a $493 million net loss as revenue dried up faster than the company could trim expenses. While 2023 revenue declined by 35 percent, to $3.8 billion, Rocket trimmed full-year expenses by 18 percent, to $4.2 billion.

At the end of the year, Rocket was collecting payments on 2.5 million mortgages on behalf of investors, a mortgage servicing rights portfolio that generates about $1.4 billion of recurring servicing fee income a year, the company said.

As is the case with many mortgage lenders who also service loans, Rocket executives say adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) are a better metric of performance.

The decline in interest rates at the end of 2023 prompted Rocket to write down the fair value of its mortgage servicing rights portfolio by $358 million in the fourth quarter, in part because falling rates make borrowers more likely to refinance and end up with another loan servicer.

Rocket achieved adjusted EBITDA profitability of $55 million for Q4 and $67 million for 2023, allowing CEO Varun Krishna to put a positive spin on results. Rocket reported positive adjusted EBITDA for the third consecutive quarter, Krishna noted on a call with investment analysts, “despite some of the most difficult industry conditions in three decades.”

Varun Krishna CEO Rocket Companies

Varun Krishna

“Our consistent execution drove exceptional results for the quarter and the year, especially given the backdrop of the market,” Krishna said. “We made significant reductions to our cost base over the past two years, and we took difficult, necessary actions to right size the company. This has helped us prioritize and focus on what we do best.”

Shares in Rocket, which in the past 12 months have traded for as little as $7.17 and as much as $15.19, were up 7 percent from Thursday’s close of $10.98 in after hours trading following the earnings release.

With $17 billion in Q4 mortgage originations and $78.7 billion for the year, Rocket said its share of purchase mortgage originations grew by 14 percent in 2023, while its share of the refinance market share grew by 10 percent from the year before.

Although Rocket Mortgage is Rocket’s biggest business, the company also matches consumers with real estate agents through a brokerage subsidiary, Rocket Homes, and provides closing and settlement services through its Amrock subsidiary.

Rocket said home equity loans and new ONE+ and BUY+ mortgage products “resonated strongly with new and existing clients.”

The ONE+ mortgage lets low- and moderate-income borrowers buy houses with as little as 1 percent down without having to pay extra for mortgage insurance, while the BUY+ program provides closing credits of up to $10,000 to homebuyers working with Rocket Homes partner agents.

The “vast majority of clients who came to us through home equity loans, ONE+ or BUY+ were new clients who did not already have a loan with us,” Rocket said in its earnings release.

Rocket is also pursuing a long-term goal of providing personal finance services to consumers through its Rocket Money subsidiary, which has 5 million users. The Rocket Money app (formerly Truebill) was the most downloaded personal finance app in the Apple App store in December, the company said.

Rocket, which kicked off the year by hiring Airbnb veteran Jonathan Mildenhall as its first group chief marketing officer, said it expects Q1 adjusted revenue of between $925 million to $1.07 billion.

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