Expansion And Partnerships Will Strengthen Future Market Position Amid Cybersecurity Challenges

Key Takeaways

• Expansion into new locations and pricing strategies are driving revenue growth and improving customer retention through enhanced travel experiences and increased ARPU.
  
• Strategic partnerships and technological advancements in identity solutions are increasing revenue potential and net margins amidst rising cybersecurity concerns.
  
• Execution risks in scaling efforts, price changes impacting membership, altered cost structures, cybersecurity challenges, and dependence on partnerships pose significant revenue and growth threats.

Catalysts

Operates a secure identity platform under the CLEAR brand name primarily in the United States.

• CLEAR's expansion of TSA PreCheck to 62 locations and future plans to increase out-of-airport locations, such as Staple stores and the Oculus in New York, position the company to capitalize on a larger market. This can drive significant future revenue growth and improve customer retention by reaching more frequent travelers.
  
• Increased pricing strategies, including reducing discounting and increasing Average Revenue Per User (ARPU), are improving dollar retention. This is expected to positively impact the company's earnings as it captures more value from its expanding product offerings and enhanced airport experience.
  
• CLEAR's platform partnerships, such as with Okta, Home Depot, and LinkedIn, are setting the stage for future revenue growth from their Verified identity solutions. As cybersecurity threats rise, these partnerships can drive Clear's adoption, boosting both revenue and net margins.
  
• The company's new ambassador compensation structure, which shifts costs from sales and marketing to direct salaries, is improving employee retention and sales efficiency. This is expected to support better net margins by optimizing labor costs and enhancing operational outcomes.
  
• The focus on technological advancements, such as the rollout of face-first enrollment and verification hardware, enhances the travel experience and improves operational efficiency. This innovation is likely to drive future revenue by attracting more members and strengthening retention.

Clear Secure Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Clear Secure's revenue will grow by 12.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.9% today to 17.1% in 3 years time.
• Analysts expect earnings to reach $176.9 million (and earnings per share of $1.49) by about December 2027, up from $80.4 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $128 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.3x on those 2027 earnings, down from 31.5x today. This future PE is lower than the current PE for the US Software industry at 42.0x.
• Analysts expect the number of shares outstanding to decline by 5.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.03%, as per the Simply Wall St company report.

Clear Secure Future Earnings Per Share Growth

Risks

• There is execution risk associated with the scaling efforts for TSA PreCheck and CLEAR Verified, particularly in expanding out-of-airport locations and integrating new partnerships, which could impact revenue and net margins if not successfully managed.
  
• The impact of price increases, especially in family membership, presents a risk of lowering net member adds if customers find the value proposition insufficient, potentially affecting retention rates and future revenue growth.
  
• The shift in ambassador compensation structure from commissions to higher base wages may alter expenses from sales and marketing to direct salaries, which, despite being anticipated to be dollar-neutral, carries a risk of unexpected financial impact affecting net margins.
  
• As the digital identity and verification market evolves, increasing cybersecurity threats and fraud could challenge CLEAR's technology investments. Any failure in upgrading security measures might result in liabilities impacting net earnings.
  
• Dependency on partnerships with companies like Uber and Okta for growth in Verified identity solutions presents a reliance risk. Any deterioration in these relationships might slow down growth trajectory and subsequently affect future revenue.

Valuation

• The analysts have a consensus price target of $32.12 for Clear Secure based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $45.0, and the most bearish reporting a price target of just $23.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $1.0 billion, earnings will come to $176.9 million, and it would be trading on a PE ratio of 26.3x, assuming you use a discount rate of 7.0%.
• Given the current share price of $26.67, the analyst's price target of $32.12 is 17.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.