COOP Q1 Deep Dive: Earnings Miss Wall Street Revenue Targets as Rocket Merger Takes Focus

Mortgage servicing company Mr. Cooper Group (NASDAQ: COOP) missed Wall Street’s revenue expectations in Q1 CY2025, with sales flat year on year at $560 million. Its non-GAAP profit of $2.97 per share was 1.8% above analysts’ consensus estimates.

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StockStory’s Take

Mr. Cooper Group’s first quarter showed mixed results, as the mortgage servicer’s revenue came in flat year over year and below Wall Street expectations, prompting a negative market reaction. Management pointed to stable performance in its servicing segment and strong execution in originations, citing ongoing benefits from operating leverage and technology investments. CEO Jay Bray noted, “This was another solid quarter, demonstrating the power of our at-scale platform to produce consistent, recurring, and predictable results.” However, the company’s adjusted EBITDA fell significantly short of analyst forecasts, reflecting a combination of lower portfolio growth and headwinds from recent acquisition integration costs.

Looking forward, management’s guidance is shaped by the pending merger with Rocket, which is expected to close later this year. Leadership emphasized the potential for combining digital platforms and leveraging artificial intelligence to enhance the homeownership experience. President Mike Weinbach highlighted, “With Rocket’s iconic brand and marketing skills, its leading JD Power service levels, its highly scalable origination platform, and our shared commitment to investing in AI, digital, and other technologies, there’s so much more we’ll be able to do for our customers over time.” The company is also focused on expanding home equity products and maintaining asset quality, while navigating regulatory approvals and integration planning.

Key Insights from Management’s Remarks

Management attributed the flat revenue and EBITDA miss to a combination of lower portfolio growth, integration costs from the Flagstar acquisition, and ongoing investment in technology and workforce efficiency.

• Servicing segment stability: The servicing business delivered consistent, recurring income, with pretax profit up 22% year over year. This was driven by operating leverage, efficiency gains, and slower prepayment speeds, though the overall portfolio size edged down slightly after planned transfers linked to the Flagstar acquisition.

• Flagstar integration progressing: The company completed onboarding customers and staff from its largest-ever acquisition, with customer service metrics like speed to answer and first call resolution remaining at industry-leading levels. Integration costs affected profitability, but management views the process as on track.

• Home equity and cash-out momentum: Originations outperformed internal benchmarks, led by strong growth in home equity loans and cash-out refinances. Cash-outs rose to 46% of total volume, with management viewing this as a long-term opportunity given high borrower equity levels.

• AI-driven operational improvements: The rollout of the Agent IQ platform, an artificial intelligence tool for call center agents, improved customer service and efficiency. Management believes broader AI adoption can further enhance operations and customer experience over time.

• Balance sheet strength: Liquidity rose to $3.9 billion, and the tangible capital ratio improved, positioning the company with flexibility for upcoming merger-related and debt management decisions. Stock repurchases were suspended ahead of the Rocket transaction.

Drivers of Future Performance

Mr. Cooper Group’s outlook centers on integrating operations with Rocket, scaling digital and AI capabilities, and capitalizing on home equity demand while navigating a challenging rate environment.

• Merger execution and integration: Management believes that successful execution of the Rocket transaction will determine the company’s future scale and competitive positioning. Integration teams are already coordinating, with a focus on combining technology, data, and marketing resources to build an integrated homeownership platform.

• Expansion of home equity products: The company sees a long growth runway for home equity and second lien products, as a large share of its customers have substantial untapped equity. Management expects continued demand regardless of interest rate trends, supporting origination segment performance.

• Asset quality and risk management: Maintaining low delinquency rates and high asset quality remains a priority, especially as macroeconomic uncertainty persists. Management highlighted consistent outperformance in government-backed loan portfolios and robust loss mitigation capacity as key risk mitigants.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will be monitoring (1) the progress and regulatory approval timeline for the Rocket merger, (2) the pace and impact of technology and AI integration across operations and customer engagement, and (3) the sustainability of home equity and cash-out origination growth amid shifting interest rates. Additionally, we will track asset quality trends and any updates on capital allocation priorities as the merger approaches closing.

Mr. Cooper Group currently trades at $153.01, up from $131.96 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).

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