Clear Secure (YOU)
Last Updated: 12/13/2024
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Background
Company Overview
Clear Secure, Inc. (YOU) is an identity-verification company committed to making everyday experiences safer and more seamless, both digitally and physically.
The company is best known for its main offering, CLEAR Plus, which is a subscription service that provides expedited access to dedicated security lanes at airports around the world, which offers travelers a more convenient way to get through airport security.
Beyond CLEAR Plus, the company also offers services such as TSA PreCheck® Enrollment Provided by CLEAR, giving travelers more options for signing up for trusted traveler programs.
Subscribers can also download the CLEAR app, a free digital hub that allows you to access different Perks such as RESERVE Powered by CLEAR, a virtual queuing tool that allows customers to prebook their spot in airport security lines.
With that said, CLEAR’s identity verification services extend beyond just travel through its CLEAR Verified platform.
This service allows businesses to integrate CLEAR’s digital identity technology using software development kits (SDKs) and APIs, enabling frictionless identify verification experiences for their customers in both physical and digital environments.
Since its founding in 2010, CLEAR has consistently expanded its network of available locations. As of December 31, 2023, CLEAR’s physical network includes:
56 airports nationwide with 147 CLEAR Plus lanes.
19 sports and entertainment venues offering priority lanes.
20 global airports with RESERVE Powered by CLEAR virtual queuing lanes.
CLEAR also partners with a growing list of businesses across a variety of industries like retail, financial services, and healthcare to deliver frictionless identity verification wherever it’s needed.
How Does The Company Make Money?
CLEAR PlusCLEAR Plus is the company’s flagship subscription service that uses biometric technology to streamline the identity verification process, allowing members to bypass traditional (and often frustrating) security lines via CLEAR’S designated lanes.
Members pay $189 annually, with additional pricing tiers for families, discounts for military/government employees, and promotions through partners like Delta Air Lines and American Express.
The CLEAR Plus model benefits from direct membership revenue where subscribers pay upfront for a year of service.
With that, through the company’s various partnerships, airlines and credit card companies subsidize membership fees to offer special pricing to their customers, which helps to expand CLEAR’s reach.
Additionally, family plans and other, complementary services, such as bundled offerings with TSA PreCheck®, generate additional revenue per customer.
TSA PreCheck® Enrollment Provided by CLEARIn collaboration with the Transportation Security Administration (TSA), Clear Secure handles enrollment and renewal services for TSA PreCheck®. This initiative expands CLEAR’s customer base while bringing travelers into its ecosystem.
CLEAR monetizes this partnership by processing enrollment fees on behalf of the TSA and offers optional CLEAR Plus subscriptions to new TSA PreCheck® users.
RESERVE Powered by CLEARThis virtual queuing technology enables travelers to book specific time slots for airport security screening, reducing wait times and enhancing operational efficiency.
Airports pay Clear Secure for this service, as it enables the airports to more efficiently operate their lanes and delight their travelers. In 2023, CLEAR began offering RESERVE access as a premium benefit to CLEAR Plus members, showcasing the potential for cross-service value enhancement.
With that said, you don’t have to be a CLEAR subscriber to use their RESERVE service. While it comes included in your CLEAR Plus subscription, non-members can pay for and use RESERVE through the CLEAR app.
CLEAR VerifiedCLEAR Verified extends the company’s biometric and identity verification offerings to businesses in industries such as healthcare, financial services, retail, and more.
The company generates revenue through licensing fees for its Software Development Kits (SDKs) and Application Programming Interfaces (APIs), enabling seamless integration into the customers’ ecosystems.
Industry Overview
Clear Secure operates in a niche, but increasingly important segment of the security and technology industry.
At its core, the company works to streamline traditionally manual processes like airport security and identity verification. If you’ve ever been through airport security, you’ll know there is plenty of room for the process to be improved.
As far as competition in the space, Clear Secure identifies its main competition as alternatives such as traditional security checks and manual screening processes. In other words, TSA is their biggest and only real competitor—at least in the travel industry.
TSA’s current process is labor-intensive, slow-moving, and often leaves travelers frustrated by long wait times. Although their current methods are still widely used—primarily due to regulation and lack of innovation from the agency—they are increasingly seen as outdated, and that will only get worse as biometrics and automation gain traction in both the public and private sectors.
With that, companies specializing in biometrics, identity-as-a-service (IDaaS), and digital security are beginning to expand into areas Clear Secure currently dominates, such as travel and venue access, which introduces additional competition.
Tech giants like Apple (Face ID) and Google (Android biometric authentication) also have a hand in biometric identity verification, and so do specialized IDaaS providers such as Okta and Jumio. While these companies are not direct competitors in aviation and travel, Okta and Jumio do compete in the B2B and B2C space and still have an influence on the broader market and consumer expectations.
Having said that, one thing that the entire industry has going for it is that identity verification is not just limited to travel. Healthcare providers, financial institutions, and even sports arenas are increasingly seeking ways to incorporate biometric systems for more convenient, and more secure customer experiences.
Financials
Being such a young company, it’s not surprising that CLEAR went through a period of unprofitability as it worked on establishing and scaling its market presence. It seems that the days of unprofitability are behind the company, and generally speaking, the charts are showing solid growth.
We can clearly see that with the revenue. The impressive top-line growth suggests strong demand for CLEAR’s services and tells us that, so far, the company has successfully been able to grow its customer base.
Despite those years of unprofitability, CLEAR looks to have turned a corner, as we can see from the Earnings Per Share. This inflection point—from losses to profitability—is an important moment in a company’s lifecycle.
It’s still so early in the game for CLEAR, and management is working hard to show us they can effectively manage costs while growing the business and rewarding shareholders in the process.
Moving onto the Free Cash Flow, this is a work of art. Seeing a steady increase here suggests CLEAR is maturing quickly (which is not to be confused with slowing down), potentially giving it a competitive advantage over its peers who may still be struggling with cash flow deficits.
Also, this substantial Free Cash Flow is what’s allowed CLEAR to pay a dividend, which is unique for a company this young.
Overall, CLEAR is showing signs of becoming a highly scalable business. As long as the company maintains its current trajectory, it should be able to reinvest in growth without having to rely on debt or diluting shareholders—a rare and valuable characteristic for a company so early on in its life cycle.
CLEAR’s gross margins are both high and growing, which is a good indicator that the company can keep growing without needing to dramatically increase its costs. This isn’t too surprising since CLEAR operates as a technology company.
Unlike businesses that rely heavily on physical products or infrastructure, tech companies often benefit from economies of scale. Once the initial systems and infrastructure are in place, adding new customers or expanding services doesn’t significantly increase costs—something CLEAR is clearly taking advantage of.
With that said, the net profit margin is still a bit unstable, which is typical for a young company transitioning from being unprofitable to profitable. As the business continues to grow and establishes more operational consistency, we should see the net profit margins stabilize.
Another encouraging sign is the company’s strong Free Cash Flow (FCF) margin. A high FCF margin means the company is able to convert a large portion of its revenue into cash, which will help it fund growth initiatives, pay dividends, buy back shares, and pay down debt (if need be).
In my opinion, the debt section stands out as one of CLEAR’s strongest characteristics. Here’s why:
CLEAR has no outstanding debt, which is rare for a company at this stage, especially one growing as quickly as this. This means the company is not burdened by interest payments, which adds to its resiliency and gives it more financial flexibility to reinvest in growth or return cash to shareholders.
The lack of debt also suggests the company has been able to self-fund growth through its cash flows instead of having to take on leverage. This is a huge advantage for CLEAR and puts the company in a stronger financial position compared to its peers who might not have the same luxury and are therefore more vulnerable to economic downturns.
With that, the charts look skewed during the unprofitable years because CLEAR had negative net income and cash flows, making some of the debt-related ratios appear odd.
Management
Strategy
Clear’s strategy is focused on growth through expansion, diversification, and more regular and habitual uses of its platform.
Since airports are the company’s bread and butter, a key part of Clear’s growth strategy involves expanding its presence in airports. While the company is already in a wide variety of locations, there is still room to grow by adding more airports and increasing coverage within existing ones through additional terminals.
Clear is also working hard to expand its use beyond airports, making its way into stadiums, arenas, and other venues. By offering biometric identity verification and expedited entry at these locations, Clear’s platform will become more relevant to members outside of just travel and will aid in the company’s goal to make use of the platform more regular and habitual for members.
On a similar note, Clear is also diversifying into other industries—such as healthcare and financial services—that are heavily reliant on secure identity verification, making them a natural candidate for Clear’s technology.
In healthcare, Clear’s technology can streamline patient check-ins and verify medical credentials, while in finance, it can simplify processes like onboarding and account creation—both of which are more examples of how the company can tap into more frequent, everyday use cases.
The more industries it can involve itself in, and the more use cases it can create, the more indispensable the service and membership will be.
Moving on from expanded use cases, partnerships are also critical to Clear’s strategy.
The company works closely with airlines (like Delta and United), credit card companies (like AmEx), and government organizations (like TSA) to enhance its offerings and reach. These partnerships help drive customer acquisition while simultaneously adding value for members by providing discounts and bundled services.
Capital Allocation
To me, the most important metric for gauging management’s ability to allocate capital is the Return on Invested Capital (ROIC).
With that said, Clear’s ROIC has historically been negative, along with the two other key metrics. This isn’t all too surprising when you consider that the company only recently became profitable.
It seems like the days of negative returns are behind them, though. All three metrics are now positive and moving in the right direction.
Regarding the ROIC specifically, what we’re seeing in the trailing twelve months (TTM) tells us that Clear is generating returns that significantly exceed its cost of capital.
This improvement in ROIC is a testament to the management’s ability to extract value from its investments in infrastructure, partnerships, and technology. If this trend continues, and if the ROIC stays in its current range, the total returns delivered by the company should be pretty solid.
Shareholder Returns
I think it’s pretty rare to see a company in the early stages of its life cycle paying a dividend, but I’m happy to see Clear doing it.
Based on the growth metrics we’ve seen—revenue, earnings, and free cash flow—Clear has all the makings to be a great dividend growth stock, and it’s good to see them rewarding shareholders this early on.
And speaking of rewarding shareholders, the company recently announced a 25% dividend increase, which is a big green flag in my book, and is a testament to their confidence in the company and dedication to rewarding shareholders.
On top of that, Clear has a history of paying special dividends every year, which is another nice bonus for shareholders. In 2024, the special dividend was announced in March and paid in April, so it’ll be interesting to see if the same thing happens in 2025.
Moving onto share buybacks, it looks like the company has been consistently issuing shares since 2020.
On one hand, this isn’t too concerning because they’re using the equity raised to reinvest back into the business instead of taking on debt—and they currently have no debt outstanding on the balance sheet. On the other hand, the shares outstanding are something we’ll definitely want to keep an eye on.
Having said that, they made substantial share repurchases in 2024, which is a good sign. From their most recent 10-Q:
During the nine months ended September 30, 2024, the Company repurchased and retired 11,983,612 shares of its Class A Common Stock for $225,160 at an average price of $18.78. As of September 30, 2024, $100,490 remained available under the repurchase authorization.
Considering the share price is now in the upper $20s, I’d say they timed those buybacks pretty well.
Overall, in both areas—dividends and buybacks—I like what I’m seeing so far and wouldn’t be upset if this trend continues.
Competitive Advantages
Brand Trust and Recognition
Over the years, CLEAR has built a reputation for privacy and security, reinforced by its certifications from the Department of Homeland Security and other governmental organizations. This trust is essential in an industry where security breaches or misuse of data can destroy credibility overnight.
Additionally, CLEAR’s partnerships with major airlines (like Delta and United), credit card companies (American Express), and TSA PreCheck® enhance the company's credibility and brand recognition. These collaborations not only position CLEAR as a trusted partner within the travel and security space but also provide a built-in customer acquisition funnel.
Competitors entering the space would have a hard time replicating this level of consumer confidence and institutional backing, making CLEAR’s brand trust and recognition a competitive advantage.
CLEAR’s strong brand has also enabled it to expand beyond airports into live sports, entertainment venues, healthcare, financial services, and hospitality. This diversification creates more resilience while also increasing brand awareness across these different industries.
High Switching Cost
Once a user is enrolled in CLEAR’s system, they gain access to a network of the company’s services through their biometrics.
Switching to a different service, or doing away with this type of service altogether, would reintroduce significant friction for users. For businesses, switching to a different service would require time, money, and retraining, and there are likely many higher-priority things they could be doing.
Overall, once users are in the CLEAR ecosystem, leaving would mess up their routines or travel efficiency, which discourages churn. As CLEAR continues to engrain itself in other industries — healthcare, finance, etc. — the switching costs become even higher.
Members can now use CLEAR for tasks such as doctor’s appointments, car rentals, online transactions, and even in an Uber—all of which increase the frequency with which Members use CLEAR’s services. The more locations and use cases CLEAR introduces, the more valuable the platform becomes for Members and partners alike, and the more difficult it is to switch.
Network Effects
CLEAR benefits from network effects in two ways: user adoption and partner expansion—and growth in these two areas actually creates a flywheel effect.
As more people enroll in CLEAR, its value to partners (airports, venues, entire industries, etc.) increases, encouraging them to adopt, maintain, or even deepen their relationship with CLEAR.
Similarly, as more partners join the platform, and as more locations/industries implement CLEAR, it becomes more attractive to members because of the expanded use cases and network of benefits.
Economies of Scale
Essentially, the more members CLEAR adds, the more efficient its operations become.
Investments in physical infrastructure and biometric technology are spread across a growing user base, which drives down per-user costs. Competitors trying to enter the market would face steep startup costs without the same user base to absorb them.
Predictable Revenue Model
CLEAR mainly generates revenue through recurring subscriptions, with memberships billed upfront on an annual basis. This model generates predictable, recurring revenue and provides a steady stream of cash flow.
Additional offerings like TSA PreCheck® enrollment services and RESERVE lanes (also available to non-members for a fee) help to diversify the company’s revenue streams while maintaining a subscription-centric approach.
Regulation
CLEAR operates in a heavily regulated space, where meeting strict government standards is mandatory.
One of its big achievements is earning a FISMA High Rating, which is the highest level of security certification from the Department of Homeland Security. This shows the company’s ability to handle sensitive data with the necessary security and protection, which is something few companies can do.
Along with that, its partnership with the TSA to enroll and renew TSA PreCheck® memberships is another example of CLEAR proving it can operate at the highest levels of compliance.
The ability to comply with these various institutions makes it significantly harder for competitors to break into the market. Any new entrant would need to meet these same rigorous standards, which creates a barrier to entry.
Risks
Regulation
While regulation can act as a moat for Clear Secure, it also comes with significant risks that could impact the business.
Operating in heavily regulated industries like aviation, finance, and healthcare means Clear is constantly subject to evolving laws, certifications, and compliance—and they have to stay on top of all of them at the same time.
A single mistake—whether it’s a data breach or a failure to meet updated compliance requirements—could damage the company’s reputation and lead to big penalties or the loss of important partnerships like TSA PreCheck®.
Also, regulatory changes can be pretty unpredictable. For example, a shift in government policy could make it harder or more expensive for Clear to operate.
And while Clear’s regulatory certifications are a competitive advantage, maintaining them isn’t a one-time thing—it requires ongoing investments in security and compliance. If Clear fails to meet these standards, it risks losing its certifications along with the trust of its members and partners, which are essential to the company’s business model.
Competition Risk
As demand for secure, frictionless identity solutions grows, the field is becoming increasingly crowded with players like Okta, Jumio, and ID.me (which also has government partnerships), with each one having its own unique strengths.
Okta, for example, dominates enterprise identity management, while Jumio focuses heavily on AI-driven digital identity verification.
Even Amazon and Google have started dipping their toes into biometric solutions. These companies bring practically unlimited resources, broader customer bases, and advanced technology to the table, making it a challenge for Clear to defend its niche.
One of Clear's primary differentiators has been its physical presence in airports and entertainment venues, but this can be both a competitive advantage and an anchor on the company.
If competitors develop more advanced or cheaper identity verification solutions that don’t rely on physical infrastructure, that could make Clear less appealing.
Additionally, competitors may target the same verticals Clear is expanding into, like healthcare and finance, which also puts pressure on Clear.
Clear also faces the challenge of keeping its technology and user experience ahead of the competition. In such a fast-moving industry, an inability to innovate or adapt quickly could make even a trusted brand like Clear feel outdated.
Ultimately, Clear’s ability to stay ahead will hinge on its innovation, customer loyalty, and partnerships—but the risk of losing ground in this in-demand and fast-changing industry is very real.
Customer Retention Risk
While Clear’s recurring revenue model provides some predictability, it also heavily depends on keeping customers engaged and renewing their memberships year after year. There are a few reasons why this is a big risk for Clear specifically:
Price Sensitivity: If customers don’t feel they’re getting enough value—either because they don’t travel frequently or they don’t see meaningful time savings at the airport—they might opt not to renew.
Competition: As we covered earlier, the identity verification space is becoming increasingly competitive. If alternatives, like TSA PreCheck® or identity verification solutions from other companies, become cheaper, faster, or more widely available, customers might jump ship.
Expanding Use Cases: This is kind of a double-edged sword. While the company has worked to expand into areas like sports venues, healthcare, and more, it risks overextending or not delivering a worthwhile experience in these new areas. If customers try these new services and are disappointed—or worse, find them irrelevant—they may question whether their membership is worth holding on to.
Declining Travel Demand: If demand for air travel decreases for whatever reason, fewer people may feel the need for expedited airport security services. Even loyal customers may pause their subscriptions during periods when they aren’t traveling as much.
Security Risk
This risk is pretty straightforward.
Obviously, Clear collects highly sensitive data, including fingerprints, facial scans, and government-issued ID information. This is prime info for cybercriminals, making Clear a big target.
If Clear were to experience a data breach, the fallout could absolutely ruin the company.
Reflections
In a few sentences, explain the company like you were talking to a 9-year old.Sometimes when you go to the airport, it can be really busy with long lines that take forever to get through. Or, sometimes you maybe don’t give yourself enough time to get to your airplane, so you feel rushed and stressed.
That’s where Clear comes in. Clear allows you to skip the long lines by quickly confirming who you are, so the airport employees know it’s really you. This makes getting through the airport much faster, easier, and way less stressful.
Clear isn’t just for airports, though.
They also help people skip lines at concerts and sports games in some places with their fast identity verification. And they’re working on doing this in other places as well, like doctor’s offices, hotels, and more.
What are this company’s main competitive advantages, and how durable are they?I think that their network effect is one of their biggest competitive advantages. As more people enroll in CLEAR, its value to partners (airports, venues, entire industries, etc.) increases, encouraging them to adopt, maintain, or even deepen their relationship with CLEAR.
Similarly, as more partners join the platform, and as more locations/industries implement CLEAR, it becomes more attractive to members because of the expanded use cases and network of benefits.
With that said, CLEAR’s partnerships with major airlines (like Delta and United), credit card companies (American Express), and TSA PreCheck® enhance the company's credibility and brand recognition. These collaborations not only position CLEAR as a trusted partner within the travel and security space but also provide a built-in customer acquisition funnel.
Also, at least for now, operating in a heavily regulated industry is playing to their advantage.
One of Clear’s big achievements is earning a FISMA High Rating, which is the highest level of security certification from the Department of Homeland Security. This shows the company’s ability to handle sensitive data with the necessary security and protection, which is something few companies can do.
Along with that, its partnership with the TSA to enroll and renew TSA PreCheck® memberships is another example of CLEAR proving it can operate at the highest levels of compliance.
The ability to comply with these various institutions makes it significantly harder for competitors to break into the market. Any new entrant would need to meet these same rigorous standards, which creates a barrier to entry.
Why shouldn’t you invest in this company? (List at least one reason)Here are a few reasons why you might think twice about investing in Clear:
Intensifying Competition: Clear has built a strong brand with a lot of trust, but the identity verification market is growing fast, and there are a lot of new competitors entering the space. For Clear to stay ahead, it has to keep improving its technology and building strong partnerships, which is easier said than done when there is so much competition.
Regulatory Oversight: Clear operates in highly regulated industries, like travel and healthcare, and while that makes it harder for competitors to come into the space, it also comes with risks. Staying compliant is a constantly ongoing process, and even one mistake—like a data security issue—could hurt the company’s reputation and impact customer retention. At the end of the day, regulation is a double-edged sword: it protects Clear, but it could also be a headwind for them.
Security Risk: Clear manages sensitive personal and biometric data, which makes it a prime target for hackers. The company has strong protections in place, but no system is 100% secure. If there’s ever a breach, it could have major consequences for the company.
Economic Sensitivity: Clear’s subscription model provides steady revenue, but it depends on people who travel often or use the service regularly. If the economy takes a hit and people cut back on travel or entertainment, Clear could see a slowdown in membership growth and renewals.
What would make me lose confidence in this company?Right now, airports and stadiums are Clear’s bread and butter. Most people become members for the convenience the company provides at the airport.
While Clear is working on expanding into other areas like healthcare and finance, those haven’t become major revenue drivers yet. The airport experience is still the core reason people use Clear.
With that said, I’d lose confidence in this company if Clear’s value at the airport disappeared.
If the TSA rolled out some new technology that was just as good—or even better—than what Clear offers, the company’s main selling point could become irrelevant. That’s a huge risk, considering how much of its business depends on the airport.
I’d also have concerns if Clear’s efforts to expand into other areas, like hospitals, finance, and retail, don’t pan out.
These new opportunities could eventually diversify Clear’s business, but they’re still in the early stages and not contributing much to the business yet. It’s going to take time to see if those efforts will actually pay off, so it’s a wait-and-see situation for now.
If you were the CEO of this company, what would you do to drive sustainable, long-term growth?If I were the CEO of Clear, I’d focus on two things the company is already working on.
First, I’d try to eliminate airport bottlenecks as much as possible. The interesting thing about Clear is that its success can also be problematic: the more people who use the service, the longer the Clear lines can get. And if the lines get too long, the convenience and speed of using Clear could take a hit.
Clear is already addressing this by rolling out new technology (like their EnVe Pods) to keep people moving through the lines as fast as possible, but they need to continually streamline the experience to make it as convenient as possible. It should be a no-brainer between Clear and the normal security line.
Next, I’d work as fast as possible to diversify away from airports, which Clear is already doing. They regularly announce new integrations in other areas, with Uber being the most recent example.
As mentioned, these other integrations are still in the early stages and not contributing much to the business yet. It’s going to take time to see if those efforts will actually pay off, so it’s a wait-and-see situation for now.
If the stock market closed for five years, would you still feel comfortable owning this company?Yes I would.
What role does this investment play in my portfolio?Clear is definitely more of an offensive position than a defensive one. The sales, earnings, and free cash flow growth is pretty aggressive, and so far the dividend raises have been the same.
This investment could come with a lot of volatility—so far that has been the case—but if the financial growth continues as it has over the long term, that volatility should be more on the upside than down.
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Revenue of $1.73B (+4.2% Y/Y) beats by $60M. Non-GAAP EPS of $1.85 beats by $0.09.