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Low rates, thin innovatory build a strong housing market: Rocket Companies CEO

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Technology platform Rocket Companies reported a $9.4B profit in 2020. Rocket Companies CEO Jay Farner joins Yahoo Finance Live to weigh in on the company’s outlook and significance of January's housing market boom.

Video Transcript

BRIAN SOZZI: Shares of Rocket Companies are surging this morning after a quarter many on the Street view as a big blowout. The Quicken Loans parent company saw sales margins and loan originations all handily beat analysts' forecasts. The company announced a special dividend and hinted on-- on its earnings call it could buy back a lot of stock under a $1 billion repurchase plan.

Joining us now is Rocket Companies CEO Jay Farner. Jay, good to speak with you this morning. We'll get to the stock price in a second. But on the quarter, you noted on the call last night this is a red hat-- red-hot housing market. How would you compare and contrast today's housing market relative to other periods of strength in your career?

JAY FARNER: Yeah, so thank you for having me, Brian. I'm really happy to be here. And I'll tell you, we've seen a lot of great housing markets over the course of time. But look at January's numbers. We just got this in. I think January sales were the best they've been in 20 years.

And so you've got incredibly low rates. You've got consumers who are focusing on how important home is. And you've got a pretty-- pretty thin inventory. You put all those things together, and you're going to have a really strong housing market, and that's what we're experiencing.

BRIAN SOZZI: My colleagues, they certainly want to talk more about the housing market. But I do want to ask first on the stock price, the gains have accelerated throughout the morning, now up close to 20%. You know, close to 40% of your stock is shorted.

Are you-- are you bewildered that people would actually short your stock? I mean, you added $2.8 billion in sales in the fourth quarter year-over-year. I mean, this is not-- I mean, this is a real business, and you guys are surging.

JAY FARNER: Well, thank you Yeah, we've been doing it 35 years. I've been here 25 years. And we are focused on building out an incredibly strong platform. I think we've got to keep telling that story.

You know, in 2020, it demonstrated that we could really scale the platform. We went up nearly $200 billion, $175 billion increase in loan volume. I think the second largest lender in the country, their entire loan volume was about the same size as our increase. So we proved the scale of our platform.

The other thing that we're always proving is the efficiency of that platform. And so as we see interest rates tick up, this is really where we can shine, because we're able to produce the highest quality product at some of the lowest cost. And that gives us the opportunity to invest, invest in marketing, invest in relationships like the Morgan Stanley E*TRADE relationship we announced yesterday.

And so as others tend to pull back in more challenging markets, we lean in. We grow. We grow market share. And as you know, our platform isn't just mortgage. It's real estate. It's auto. We launched Rocket Labs, so we're developing other business lines.

And so that-- that lifetime value of the client that we're-- we're winning each and every day, we get to spread over all of those revenue generators, not just one. And so I think the shorts are starting to understand that, and I assume over time we'll see fewer and fewer people shorting the stock. But we're just going to keep doing what we do, which is focus on our platform, focus on our business, focus on great client experience. And I believe the rest will kind of take care of itself.

JULIE HYMAN: Jay, just to follow up on that a little bit, because you are not alone in this, right. We have seen this turbulence-- this market turbulence, shorts, short squeezes, meme stocks, as you well know, that's been going on. And if-- if you're sort of-- and I know you want to focus on the fundamentals of the business, but at the same time, your stock is your currency, in many cases.

And so how do you manage through that? Do you just sit back and wait for those things to kind of play themselves out while you're managing the business over here? Do you take advantage at some point to-- I mean, I know you guys just-- just came to market. Do you take advantage at some point to-- to raise more cash? I mean, how do you think through all these issues?

JAY FARNER: Yeah, great question. You know, we're always thinking about capital allocation in our business. It's incredibly important. We're very fortunate that we throw off a lot of cash, made almost $11 billion last year, so that's nearly a billion dollars a month. And so we have the cash to do a lot of the things that we would want to do. That gives us flexibility around the stock price.

Remember, we sold about 5% of our business. So we own about 95% of it still, the kind of core partners of the business, and so we can be kind of long-term focused. And if we see that the best thing to do is to reward our shareholders with a dividend, that's what we'll do.

If we think that the stock price presents an opportunity to buy some of it back, that's what we'll do. But we're not dependent on that stock price at any given moment to make an acquisition or invest in our business because of the cash that we're able to earn. And so it does give us the opportunity to sit back a little bit and not worry about the day-to-day trading of the stock.

EMILY MCCORMICK: And Jay, just taking a look at the business, what are you seeing in terms of broad trends between mortgage for refinances and for home purchases? Because as we've seen in the weekly mortgage application data, it looks like volume for both has been going down lately. And what are the trends that you're actually seeing at the company?

JAY FARNER: Yeah, well, like we talked about right at the start of the segment here, home purchase, we think, is going to be incredibly strong this year. And so our relationship with realtor.com, our relationship with E*TRADE, Charles Schwab, American Express, Intuit, TurboTax and Mint, those are very important, because it puts us in front of a consumer at the right moment in time. You're also going to see us probably increase our performance marketing spend.

And so you're right, there is pressure as more capacity is put into the-- the kind of mortgage operations and then as margins shift and change, but that pressure provides an opportunity for us to invest and grow market share. And so we feel great about where purchase is at. And as Bob Walters, our COO, always reminds me, in any market, you know, it might be 4 trillion or 3 trillion or 2 and 1/2 trillion, there are thousands, millions of people that still need to refinance.

Rates are sitting at 3% on a 30-year fixed. People have got consumer debt at a higher interest rate than that. People want to invest in their homes. People have life changes, unfortunately, that create the need to move. And so our experience over 25 years is that although it makes it a bit more challenging, if you have all of these different avenues like we have, direct-to-consumer, the broker, those partnerships, we can lean in, and we can grow market share as-- as others kind of back away. So we view it as an opportunistic market for us.

BRIAN SOZZI: Jay, you announced on the call yesterday Rocket Labs. What is that? And what don't you do now that you want to do?

JAY FARNER: Yeah, so I think it's just formalizing some of the things we're already doing. We've got 2.2 million clients in our servicing book. We're talking to millions of folks a month about their finances. And so it's important for us to think about our core business, mortgage and real estate, but also think about the other things that we can bring to our-- our consumer base so they can engage with us more often, we can generate revenue, almost like a subscription model, where there's-- whether it's auto, or home services, or real estate, or personal loans.

And so Rocket Labs gives us this opportunity to formalize that investment, to take a small group of people, technologists, put them off to the side and say, hey, for the next six months work on this. Let's test it with our client base. Let's make sure we're on the right path. And then we can add it to our Rocket platform and we can grow that platform.

And what it really does is grow the lifetime value of every consumer that we bring on. And back to that other question about interest rates, although margins might compress from time to time, because we're looking at the lifetime value of a client and not just that one transaction, it gives us great power to go in and spend more to drive clients into our platform. That's something that a lot of our competitors don't have.

BRIAN SOZZI: Well, real impressive year. We'll leave it there for now. Rocket Companies CEO Jay Farner, stay safe. We'll talk to you soon.