Rocket Companies second quarter earnings report shows a promising comeback after two consecutive quarters of revenue loss.
The Spring home buying season bolted Rocket Companies out of the red. The company reported net income of $139 million for the second quarter on more than $1.2 billion in revenue, compared to $60 million profit and $1.4 billion in sales for the same period last year. Rocket’s total adjusted revenue exceeded the high end of their guidance range, but was still down 11% from last year.
Despite inventory constraints and affordability challenges, Rocket Mortgage also grew its origination volume from last quarter by $5 billion, going from $17 billion in the first quarter to $22 billion by the end of the second quarter. Yet, originations are still down 43% from last year. Rocket's quarterly gain-on-sale margin also fell year-over-year to 2.67% from 2.92%.
The third quarter of last year was the last time Rocket reported turning a quarterly profit.
Much of Rocket’s success this quarter was attributed to their growth in purchase market share. Interim CEO Bill Emerson said their clients and broker partners have benefited greatly from their new products Buy+, Sell+, and One+ that save borrowers thousands of dollars on their transactions.
"We remain encouraged by the fact that consumer demand for homes continues to be robust, and we're seeing a healthy purchase pipeline," said Emerson during the earnings call. "People just want to buy homes. That said, at the macro level, the inventory and affordability challenges consumers experienced in the first quarter persist."
However, the growth in revenue is also the result of some significant cost cutting. Rocket's total expenses for the second quarter came in at $1.1 billion, down 16% from a year ago.
In order to save revenue, the company has decided to wind down its Rocket Auto business and its solar panel business. It now only offers solar financing through Rocket Loans. These cuts along with their recent workforce reduction is projected to help the overall company achieve $150 million to $200 million in annualized cost savings, starting in the fourth quarter.
In July, the company had its third round of buyouts since April 2022, which was offered to all Rocket Central staff members. The latest buyout offering is projected to cost the company $50 million to $60 million in the third quarter.
As for the recent C-suite shake-up that was announced earlier this week, analysts inquired why Varun Krishna was chosen as CEO of Rocket Companies and what this means for the company going forward.
Emerson said that the strategy moving forward is to push direct-to-consumer (DTC) business and increase the focus on improving digital platforms. He said the hiring of Krishna should indicate that because of his prior work experience. Krishna has 20 years of experience building consumer platform strategies for leading global fintech companies, including the consumer group of Intuit Inc. and PayPal.
The increased focus on DTC makes sense given the fact their DTC channel reported $12.4 billion in closed loans compared to $9.6 billion through its TPO channel, which has historically been a stronger source of purchase business.
Additionally, Rocket reported $8.6 billion in liquidity – including $900 million in cash – up from $8.1 billion in liquidity in the previous quarter.
The outlook for adjusted revenue in the third quarter remains the same, between $850 million to $1 billion.
