Rocket Companies has been on an absolute heater lately, climbing 22% in just the last month while analysts sat on the sidelines with their cautious "neutral" ratings (looking at you, Wedbush). Now, with the announcement that Rocket is acquiring Redfin in a $1.75 billion all-stock deal, the stock jumped another 6% this morning. Which you have to admit… isn’t bad for a company that, just a couple of years ago, was cutting costs like Dave Ramsey to stay in business.

The idea behind this acquisition is pretty simple. Rocket wants to own more of the homebuying process from start to finish. In theory, it makes sense… home buyers start their search on Redfin, fall in love with an overpriced shoebox, and instead of wandering off to another lender, Rocket swoops in with financing, title, and closing services all under one roof. 

CEO Varun Krishna says the move will "remove friction, reduce costs, and increase value to American homebuyers." Which really means: They want to make sure nobody leaves the Rocket ecosystem before signing on the dotted line.

Redfin’s journey to this moment has been, well, a bit rough (to say the least). The company went public in 2017, and for a while, things were fine. Then came the pandemic-fueled housing boom, sending Redfin's stock soaring to an all-time high of $96 in early 2021. It looked like the real estate market was going to skyrocket forever… until reality struck. 

As mortgage rates climbed and demand cooled, Redfin’s stock jumped off a cliff (without a parachute), spending most of the last three years below $10. Weak earnings and a pathetic outlook didn’t help either. Just when it looked like Redfin was running out of options, Rocket came in with a $12.50 per share offer (a 115% premium over Redfin’s last closing price) instantly turning the struggling brokerage into the “hot girl at the bar, who took off her glasses”.

(Source: National Mortgage Professional)

Investors, however, are still trying to make sense of the deal. Redfin stock went nuclear in premarket trading, up more than 80%, because, well, someone just bailed them out at a generous price. Rocket’s stock initially dropped about 10% before bouncing back to a 6% gain, as institutions went back and forth with whether this was a bullish or bearish case. 

The skepticism isn’t completely unwarranted… Blending mortgage lending with real estate brokerage isn’t exactly a genius idea to a lot of “experts”. Wedbush and other analysts have kept their neutral ratings, waiting to see if Rocket can actually pull this off.

The strategy, though, is clear. Rocket wants to create a seamless, Amazon-like experience for home buying. You search for a house on Redfin, figure out what you can afford, book a tour with a Redfin agent, and get pre-qualified for a loan with Rocket… all in one app, all in minutes. It’s an ambitious vision, and if it works, it could be somewhat disruptive for the real estate industry. The company is also banking on long-term cost savings, projecting $200 million in synergies by 2027.

Only time will tell if this move pays off or turns into another "holy overpay" disaster. For now, real estate companies are left crossing their fingers, hoping Jerome Powell decides to play nice and cut interest rates.

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