Anthony Hsieh vastly underestimated the amount of revenue his Foothill Ranch-based loanDepot Inc. could generate last year.
In May, he thought his company could boost revenue 50% to $2 billion.
Instead, it topped $3 billion—and that’s only for the first nine months of 2020.
The information was part of an initial public offering filing that loanDepot made last week with the Securities and Exchange Commission.
LoanDepot, founded in 2010, is a “customer-centric, technology-empowered residential mortgage platform with a widely recognized consumer brand,” said the prospectus. “We have built a leading technology platform designed around the consumer that has redefined the mortgage process.”
This filing is the second attempt by Hsieh to go public. He initially filed in 2015, but pulled back because of market conditions.
This time around, Hsieh has a benchmark. Rocket Companies Inc., parent of Quicken Loans, went public last year, raising $1.8 billion. The Detroit-based company, the only non-bank mortgage lender larger than loanDepot, now has a $39 billion valuation.
Since Rocket’s sales were expected around $10 billion in 2020, a similar valuation of four times sales may put loanDepot’s valuation around $12 billion to $15 billion, which would make it among the top five most valuable publicly traded companies in Orange County.
“Absolutely no comment” on the valuation, Hsieh laughed during an interview late last year when the Business Journal named him executive of the year in the finance category.
A loanDepot representative was unavailable last week to discuss the pending IPO.
Booming Business
The newly disclosed financials reveal why Hsieh last year hired 3,500 to boost his headcount to over 10,000—the company is booming.
In the first nine months, net income was an astounding $1.5 billion; its adjusted EBITDA margin was 52%. The main reason was a $2.9 billion net gain on the origination and sale of its mortgage loans.
In 2019 when interest rates were rising, it reported net income of $34.4 million on $1.34 billion in sales. Its adjusted EBITDA margin was 9.2%.
Hsieh wasn’t happy with the company’s performance in 2018, so he took no salary that year and only $4,779 in 2019. Last March, his annual salary was increased to $500,000.
The filing didn’t disclose the ownership percentage of Hsieh or the other original investors, which are entities affiliated with San Francisco-based private equity firm Parthenon Capital.
The Business Journal in July estimated Hsieh’s wealth at $2.3 billion, based on owning around half of loanDepot.
The company has $637.5 million in cash and equivalents and net debt obligations of $706.5 million. Its capitalization is $7.6 billion.
The exact amount to be raised wasn’t disclosed; the prospectus listed a $100 million placeholder amount. Some of the proceeds will be used to compensate Hsieh and other executives, the filing said.
Hsieh and Parthenon will continue to control a majority of the combined voting power of loanDepot after the IPO, filings indicate.
The who’s who of Wall Street are the lead bookrunners, led by Goldman Sachs, BofA Securities, Credit Suisse and Morgan Stanley. Nine other investment banks are listed as managers as well.
Mello Investment
After the 2015 attempt to go public fizzled, Hsieh spent $80 million to build a technology system called “mello,” which was introduced in 2017. The company said it has spent $400 million on technology since its inception.
“Our digital-first approach has allowed us to become one of the fastest-growing, at-scale mortgage originators in the U.S.,” the filing said. “Mello drives streamlined customer experiences and operational efficiency throughout the entire lifecycle of a mortgage loan, including fully digital capabilities for customer acquisition, application, processing and servicing.”
The company’s prospectus emphasizes it is “a data driven company.” For example, the mello system helped reduce its customer acquisition cost in half to about $767 over the past three years.
The prospectus lays out the market opportunity, saying that many mortgage originators rely too much on legacy systems that include a lot of paperwork.
The mortgage industry represents the largest segment of debt in the U.S. consumer finance market with about $11 trillion of mortgages outstanding in the U.S., according to the company, citing the Federal Reserve. About 95% of existing mortgages could benefit from refinancing, loanDepot said.
The industry almost doubled its originations in 2020 to $4.1 trillion, according to Fannie Mae, which is expecting another $5.2 trillion in the coming two years.
The Moat
LoanDepot in 2020 grew faster than the market as its loan origination volume growth soared 116% to $79.4 billion of loans for the 12 months ended Sept. 30.
The company is the second-largest retail-focused non-bank mortgage originator and the fifth-largest overall retail originator, according to Inside Mortgage Finance, a widely read newsletter that tracks the industry.
The company, which has a 2.6% market share, said it has spent $1.2 billion on marketing its brand in the past decade, which has provided a significant moat.
“The barriers to building a technology-driven, contemporary mortgage company with a nationally-recognized brand are significant,” it said. “We have accumulated more than 10 years of proprietary data on consumer behavior that we use to optimize our marketing efforts and the customer experience.”
The Art of Building a 10,000-Employee Company
(Editor’s Note: LoanDepot CEO Anthony Hsieh wrote the following letter in his prospectus filed last week.)
Eleven years ago, I founded loanDepot, confident we could deliver the dream of homeownership to individuals and families across the nation.
I wasn’t alone on my journey. There were 50 bright, dedicated and passionate individuals that joined me, and together, from day 1, we were inspired to do our best–and be our best–for our customers. We were committed to providing honest products with great value, and committed to delivering them in an innovative, delightful way.
To do what we did back then took more than wisdom and tenacity, it took courage. We chose to enter the market at a time when few were willing to take the chance, and even fewer were succeeding. Despite the headwinds originally against us, we had a vision, and we never lost our focus. We knew that online demand for mortgage products and services was going to grow and we believed the market would gravitate to originators with a recognizable brand that could deliver seamless experiences on par with emerging and best-in-class digital technologies.
We always had high expectations for ourselves. We acted with focus and urgency every single day, because we knew that behind every loan file was a family, and that family deserved the best we could offer.
Even at that time, we knew, in order to truly do our best for our customers, we had to compete with the exceptional digital experiences customers have outside of the mortgage industry each and every day. We knew we had to disrupt the mortgage industry in the same way that Apple, Netflix and Amazon disrupted their verticals, ultimately forever changing consumer behavior.
This early recognition separated us from the pack and is what led to the creation of mello. mello changed the game for the mortgage industry and allowed us to be in control of our own digital destiny, ensuring that we could deliver a loan experience to customers that felt simple, easy and rewarding. The advent of mello, and the subsequent development of the mello smartloan, brought full circle the reasons why the team and I originally came together over a decade ago.
I’m often asked how a company that started with 50 employees and a dream was able to accomplish all that we have in just eleven short years. For us, the answer is simple-we think and do differently to delight our customers.
• Thinking and doing differently, for us, means building and harnessing technology and data in a way that leads to customer satisfaction and loyalty.
• Thinking and doing differently is what allows us to be one click away from millions of customers at all times, and to be able to intelligently and nimbly match our customers with the right loan officer and the right product, at the right price, at the right time.
We’ve grown from 50 founding employees, to now, team members 10,000 strong, serving more than 30,000 customers each month, helping them achieve their financial goals in a way that is personalized, convenient and fast. We’ve created a company that is built to serve customers throughout the entire loan transaction, from the onset of the purchase or refinance decision through loan closing and servicing. We now possess roughly 3% market share of annual mortgage origination volumes, which makes up part of the $11T total addressable market. Thanks to our brand investment over time, we are also one of the most recognized brands in the industry today. All of this gives us enormous runway. And, to some, it may seem like we are in a much different place than we were eleven years ago.
But, from my vantage point, much feels the same.
As we continue rounding the corner into our second decade, the size and scale of our platform has changed, but our core values and principles have not. We’re going to keep doing what we set out to do eleven years ago. We will continue thinking and doing things differently on behalf of our customers, serving, delivering and innovating with intent. We’ll continue to challenge what’s possible, all while remaining true to our customers, our team and our purpose.
Because, at loanDepot, we know home means everything.
