Have you ever wondered what happens when a powerhouse investor spots untapped potential in a company that’s already a market leader? That’s exactly what’s unfolding with Rocket Companies, a fintech giant that’s caught the eye of activist investor ValueAct Capital. Their recent stake in the mortgage industry leader has sparked curiosity about how they might shake things up to boost the stock price. Let’s dive into this intriguing story of strategy, technology, and untapped value.
Why Rocket Companies Is a Hidden Gem
Rocket Companies isn’t your average financial player. As the top mortgage originator in the U.S., it’s carved out a massive lead in a fragmented industry. Their secret? A technology-driven approach that’s more assembly line than old-school banking. By breaking down the mortgage process into specialized steps, each handled by dedicated teams and cutting-edge tech, Rocket originates loans at a fraction of the cost of competitors—about one-third, to be exact—and closes them in roughly 21 days compared to the industry’s 45-day average. That’s a game-changer.
Yet, despite this dominance, Rocket’s stock hasn’t exactly set the market on fire. Since its 2020 IPO, shares have slumped by nearly 30%. Why the disconnect? It’s not the business model—it’s the stock’s structure. A limited public float, a complex share class setup, and founder Dan Gilbert’s tight grip on voting power have kept many institutional investors at bay. But change is brewing, and ValueAct’s arrival could be the spark that lights up Rocket’s stock price.
ValueAct’s Playbook: A Proven Approach
ValueAct Capital isn’t your typical activist investor throwing darts at a board. For over two decades, they’ve built a reputation as thoughtful, long-term players who create value behind the scenes. With a track record of 106 activist campaigns and an average return of 52.6% (compared to the Russell 2000’s 21.27%), they know how to move the needle. Their secret sauce? A mix of corporate governance expertise and strategic boardroom influence, often taking seats on about half of their core portfolio companies.
“ValueAct doesn’t just invest; they transform companies by aligning strategy with long-term value creation.”
– Financial analyst
What makes ValueAct’s approach so compelling is their knack for working with controlled companies—those where founders or insiders hold significant voting power. Rocket fits this mold perfectly, with Dan Gilbert controlling over 80% of voting rights. ValueAct has thrived in similar setups, delivering a jaw-dropping 96.15% average return in controlled companies like Meta Platforms and Spotify. Their playbook often involves simplifying capital structures, attracting institutional investors, and pushing for operational excellence.
Untangling Rocket’s Stock Woes
Rocket’s stock has been held back by a few key issues, but they’re not insurmountable. The biggest hurdle is its small public float, which sits at just 7% of total voting power. This scarcity makes it tough for large institutional investors—like pension funds or mutual funds—to take meaningful positions. Add to that a convoluted share class structure (originally four classes, now being simplified to two), and it’s no wonder the stock trades at a low single-digit price-earnings multiple, while peers like Schwab command multiples closer to 20.
Here’s where things get interesting. Rocket is already taking steps to address these issues. The company’s upcoming acquisitions of Redfin and Mr. Cooper are set to boost the public float to 35%, a massive leap that should make the stock more attractive to big players. Plus, the simplified share structure will reduce complexity, making it easier for investors to jump in. These moves alone could help close the valuation gap, but ValueAct’s involvement suggests there’s more to come.
- Increased float: From 7% to 35%, opening the door to institutional investors.
- Simplified shares: Reducing from four classes to two for clarity.
- Controlled structure: Dan Gilbert’s 65% control doesn’t faze ValueAct’s strategy.
The AI Revolution: Rocket’s Next Frontier
Now, let’s talk about the real game-changer: artificial intelligence. Rocket’s tech-forward approach already gives it a leg up, but integrating AI could supercharge its mortgage processing machine. Imagine an already efficient assembly line—where loans are originated at lightning speed—made even faster and cheaper through AI-driven automation. This isn’t just wishful thinking; it’s a logical next step for a company that’s already embraced technology to outpace competitors.
Rocket’s new CEO, with a resume boasting stints at Intuit, PayPal, and Microsoft, is no stranger to tech innovation. Unlike traditional banks, which often lag in adopting new tools, Rocket is a tech-native company, perfectly positioned to leverage AI for operational efficiency and profitability. From streamlining appraisals to optimizing customer interactions, AI could widen Rocket’s competitive moat, potentially doubling its market share from 8% to 15-20% in the coming years.
“AI isn’t just a buzzword—it’s a transformative tool for companies that know how to wield it.”
– Tech industry expert
Here’s a personal take: I’ve seen how tech disruptors like Amazon and Tesla have used AI to dominate their industries, and Rocket feels like it’s on a similar path. The mortgage industry is ripe for consolidation, and a company with Rocket’s tech chops—and ValueAct’s strategic guidance—could easily emerge as the dominant player.
Why ValueAct’s Expertise Matters
ValueAct isn’t just betting on Rocket’s potential—they’re bringing serious firepower to the table. Their experience spans both sides of the AI equation: they’ve sat in the boardrooms of AI developers like Microsoft and Salesforce, and they’ve guided AI beneficiaries like Spotify and Expedia. This dual perspective gives them a unique edge in helping Rocket navigate the AI landscape.
Unlike some activists who push for quick wins, ValueAct plays the long game. They don’t always demand board seats, but given their $200 million stake in Rocket—a relatively small position for them—there’s a good chance they’ll deepen their involvement as the float increases. A board seat could be a natural next step, especially with their knack for financial engineering and governance tweaks that unlock shareholder value.
| Company Type | ValueAct’s Role | Average Return |
| Controlled Companies | Strategic Guidance | 96.15% |
| AI Developers | Boardroom Influence | High |
| AI Beneficiaries | Operational Optimization | Significant |
The Bigger Picture: Industry Consolidation
The mortgage industry is a fragmented beast, with no single player commanding more than a sliver of the market. Rocket’s 8% share is impressive, but there’s room to grow. Digital industries often consolidate around a few major players—think Amazon in e-commerce or Google in search. Rocket’s tech advantage, coupled with AI, positions it to capture a much larger slice of the pie, potentially hitting 30% or more through organic growth and smart acquisitions.
Declining interest rates could also play a role. Lower rates typically spark a refinancing boom, which would boost Rocket’s volumes. But here’s the kicker: while rates are a tailwind, the real driver is Rocket’s ability to stay ahead of the tech curve. Traditional banks, weighed down by legacy systems, will struggle to keep up. Rocket’s agility and ValueAct’s strategic nudge could make it the go-to name in mortgages.
What’s Next for Rocket and ValueAct?
So, where does this leave Rocket’s stock? The pieces are falling into place: a larger float, a simpler share structure, and a tech-savvy CEO ready to embrace AI. ValueAct’s involvement adds a layer of confidence that these changes won’t just happen—they’ll be executed with precision. While the stock’s current valuation lags behind peers, the gap is closing, and investors who get in early could see significant upside.
Here’s my take: Rocket Companies is at a turning point. With ValueAct’s expertise and Rocket’s tech prowess, this could be one of those rare moments where a great company finally becomes a great stock. The mortgage industry won’t stay fragmented forever, and Rocket is poised to lead the charge.
- Float expansion: Attracts institutional investors, boosting demand.
- AI integration: Enhances efficiency and widens competitive edge.
- ValueAct’s guidance: Leverages governance and tech expertise for growth.
Will Rocket’s stock soar as these changes unfold? Only time will tell, but the combination of a market leader, a visionary investor, and a tech-driven future makes this a story worth watching. What do you think—could Rocket be the next big fintech success?
