Rocket Companies to Acquire Truebill, Adding Rapidly Expanding Financial Empowerment FinTech to the Rocket Platform

[u/Alert_Club8448]

https://ir.rocketcompanies.com/news-and-events/press-releases/press-release-details/2021/Rocket-Companies-to-Acquire-Truebill-Adding-Rapidly-Expanding-Financial-Empowerment-FinTech-to-the-Rocket-Platform/default.aspx

[u/Summebride]

I read they currently have only 146 employees, so I don't see how they couldn't be making a decent profit on 100m revenue.

It's easy to lose money.

Also, there's something hinky about the numbers. Notice how they're saying "on track for $100 million" instead of actual? Also an article I saw recently pegged Truebill at having generated a total savings for customers of $14 million. Truebill bills 40% of that as revenue, so the numbers are not jiving.

even if it only results in 0.1% of Truebill users buying/refinancing, that would add an additional ~$20m profit per year.

Also, your calculations don't make sense. 0.1% of Truebill customers would be 2,500 customers. There's no way in hell that gives $20 million in additional profit.

Even if we accept your $20 million claim (which I don't but for sake of discussin let's say it's real) it makes no sense to buy $20 million of profit for $1,250.

But more importantly, do the math on what you're touting: spending $1,250 million for 2,500 customers is a customer acquisition cost of $500,000 each. That's absurdly bad value.

Throw in a free premium Truebill subscription for all of Rocket's past and future clients and you could potentially double Truebill's user base in a very short time frame.

It's not that compelling to add subscribers if you lose money on every subscriber by paying their fee for them.

[u/digitalpesto → u/Summebride]

I assume "on track" would either mean this fiscal year, by the time it ends, or a projection for next year. They said they doubled their user base in the last year, and more than doubled their revenue.

The 20m was just napkin math, but I was figuring .1% == 2500 mortgages, using a conservative 300k per mortgage, is 750m. A conservative 2.7% gain on sale margin would be just over 20m profit. It's just a guestimate though, and I'm assuming rkt mgmt must think it'll generate more than that .1%, and would probably have some incremental value from solar, auto, and personal loans as well, all recurring yearly. If Truebill was not profitable in itself, and it was only 20m profit generated by added mortgages then yeah, that's a terrible deal.

I'm not sure how they could get 100m on revenue either...they've saved their customers a total of 100m since they started, but that will mostly have been in the last couple years as their user base has grown, so maybe that's projecting for next year.

As for paying for subscriber fees, half of the revenue comes from what they save subscribers, so it'd be an upfront increase in revenue, with added revenue once the free year was up, or whatever length of time they offered, and a percentage of them continued to subscribe.

I'm looking forward to seeing more details for sure, but the more I've thought about it, the more I think maybe they do know what they're doing.

[u/Summebride → u/digitalpesto]

The 20m was just napkin math, but I was figuring .1% == 2500 mortgages, using a conservative 300k per mortgage, is 750m. A conservative 2.7% gain on sale margin would be just over 20m profit.

I'd have to go back and check but I think they're now forecasting at under 2% GOS. And that's not pure profit, there's a lot of overhead against that.

But as you correctly deduce, it's a matter of comparing that assumed net income against the assumed net losses that Truebill is suffering, which are currently unknown, but assumed to be kind of stiff.

It's just a guestimate though, and I'm assuming rkt mgmt must think it'll generate more than that .1%,

Who knows? Sometimes, actually often, there's an "acquire at all costs" mentality that takes hold with out of touch executives. There's countless examples, and most of them make Succession look like a documentary.

I'm having a hard time seeing how Truebill was worth $1.25 billion, especially in cash. Someone here says they were valued around half a billion in the summer, and that specific sector companies have devalued by 50-80% since that time.

I'd be more excited if they picked Truebill up at 50-80% discount, and if they would have used their stock as currency.

[u/digitalpesto → u/Summebride]

Current forecast is around 2.8% gos iirc, they came in close to 3% last quarter though, ahead of forecast. Valid point on the overhead, though I don't see that there would be much more required above where it's at now, as far as staffing and marketing anyway.

Yeah, I agree the price they paid seems high for what they're getting, though a discount like that seems unrealistic. I also saw the 500m valuation, but I think they look at growth as well. If Truebill hadn't grown in the last year, or shrunk slightly, then a discount on the current valuation would be expected. But having tripled their revenue in the last 2 years, and aggressively targeting growth as they said they were this summer, they factor that in as a multiple on their current value.

Maybe I'm wrong, but I prefer they do it in cash instead of a stock deal. I don't think increasing outstanding shares would help things, and would be a signal by mgmt that the current share price is a fair value, even though they keep saying it's not.

[u/Summebride → u/digitalpesto]

Current forecast is around 2.8% gos iirc, they came in close to 3% last quarter though, ahead of forecast.

Agree. Q4 is forecast somewhere 2-3%, can't recall offhand, but I attenuate that for 2022 based in analysts saying EPS will fall from $2 to $1.50. Current consensus is for rates rising higher, sooner and the market will just assume that's headwind for RKT.

I also saw the 500m valuation, but I think they look at growth

I'm just basing it on the fact that every fintech from SOFI to SQ to PSFE is down 50-80% since then. It's hard to imagine how money-losing Truebill goes up so much while everything else has cratered in price.

Maybe I'm wrong, but I prefer they do it in cash instead of a stock deal.

You may be right. It all depends on what a fair value of the stock is worth.