Strong potential through partnerships, international expansion and wider application of biometrics

Key Takeaways

• Clear Secure (YOU) has strong potential for future growth, particularly if it successfully diversifies its offerings and expands its digital identity services beyond airports.
• The company’s success hinges on its ability to scale internationally, as its current US-centric focus limits its addressable market.
• Operational efficiency and user experience improvements (eg: Their next-gen EnVe rollout) are critical to maintaining customer satisfaction and competitive advantage.
• Rising airport costs and cybersecurity risks pose significant threats to CLEAR's business model and reputation.
• CLEAR's reliance on biometric data makes it highly vulnerable to data breaches, which could have catastrophic consequences.

Catalysts

• Diversification of Services:
  • Expansion into digital identity services for non-airport use cases (eg: stadiums, healthcare, retail) could open new revenue streams.
  • Partnerships with governments or private enterprises for identity verification could accelerate growth.
• Wider Applications Beyond Airports and Entertainment Venues:
  • Retail stores: Biometric authentication for seamless checkout experiences, reducing friction for customers.
  • Online platforms: Integration of CLEAR's biometric verification for secure logins and transactions.
  • Healthcare: Use of biometrics for patient identification, prescription access, and secure entry to restricted areas (eg: pharmacies, labs).
• International Expansion:
  • Entering new markets outside the US could significantly increase CLEAR's addressable market and reduce geographic concentration risk.
  • Regulatory approvals and partnerships with international airports will be key drivers.
• Operational Improvements:
  • The rollout of EnVe and other technological advancements could streamline the customer experience, making CLEAR faster and more seamless.
  • Enhanced integration with TSA PreCheck and other security programs could improve adoption rates.
• Industry Trends:
  • Increasing demand for contactless and biometric solutions post-COVID-19 supports CLEAR's value proposition.
  • Growing focus on secure digital identity verification in various industries creates tailwinds for CLEAR's expansion.

Assumptions

• Total enrolments are projected to expand from ~26.5M today to 45-48M by 2030, with the growth accelerating in years 2-3 as EnVe technology and international expansion take effect.
• Revenue is expected to grow from $735M today to approximately $1.5B by 2030, representing an annual growth rate of ~12.58%.
• Profit margins are expected to improve from current levels to reach 16% by 2030, driven by operational efficiencies from EnVe technology deployment and economies of scale.
• Earnings are projected to grow from $80.4M today to $209M by 2030, reflecting both revenue growth and margin expansion.
• The future PE ratio is estimated at 35x by 2030, slightly above the current 27.59x PE ratio but below the broader software industry average, reflecting CLEAR's hybrid business model of both software and physical infrastructure.
  • This represents a growth of earnings at 0.42c per share. 

Based on these growth projections and the current fair value of ~$46 (which represents a ~50% undervaluation), the company appears positioned for significant value creation if these targets are achieved.

Risks

• High Subscription Cost: At $199 usd annually per person ($318 for a couple), CLEAR’s pricing may limit its appeal to a broader customer base. While the CLEAR Plus option includes a TSA PreCheck rebate, the upfront cost remains a barrier for many potential users.
• Negative Public Perception: CLEAR faces criticism from some customers and non-users who view its service as a paid "line-cutting" privilege, creating reputational risks and potential backlash. This perception could hinder adoption and brand loyalty.
• Airport Revenue Sharing Agreements: CLEAR’s reliance on revenue-sharing and lease agreements with airports places it in a vulnerable position. Airports, which hold significant leverage, could increase fees, potentially forcing CLEAR to pass these costs onto customers.
• Operational Challenges:
  • Technology Limitations: CLEAR’s system struggles to identify individuals with certain disabilities, as it requires a driver’s ID with no current backup solution. This limits accessibility and could lead to customer dissatisfaction.
  • Scalability Issues: Rapid growth in 2023, with over 17 million sign-ups, overwhelmed CLEAR’s infrastructure and staff, resulting in longer wait times and operational inefficiencies. Customer reviews during this period highlighted disorganisation, machine malfunctions, and concerns about the service’s value proposition.
• Limited Market Accessibility: CLEAR is only available to U.S. citizens and legal residents aged 18 and older, restricting its potential customer base. Additionally, users must pass a background check, further narrowing its addressable market.
• Privacy Concerns: Despite compliance with the Biometric Information Privacy Act (BIPA), some customers remain hesitant to share biometric data due to fears of misuse or data monetisation. These concerns could deter adoption among privacy-conscious individuals.
• Security Incidents: CLEAR has faced security breaches, including instances where individuals bypassed ID checks or used fraudulent identities. These incidents have strained its relationship with the TSA and raised questions about the reliability of its verification processes.

Valuation

• Bull Case ($45.00): Driven by successful international expansion, new partnerships, and operational efficiencies.
• Bear Case ($23.00): Reflects risks like customer churn, regulatory hurdles, and execution challenges.
• 2026 Revenue: ~$800 million, fuelled by airport growth, enhanced user satisfaction and new verticals (eg: stadiums, events).
• 2028 Revenue: ~$950 million, fuelled by large international expansion and biometrics becoming a normal part of everyday life.
• Growth Drivers:
  • Partnerships: Collaborations with airlines, airports, and TSA PreCheck enhance value proposition.
  • International Expansion: Potential to replicate U.S. success in global markets.
  • Biometric Applications: Diversification into healthcare, retail, and other sectors.
• Future PE: 35x by 2028, justified by high growth and market leadership.

CLEAR’s strong growth potential through partnerships, international expansion, and biometric diversification supports a bullish outlook, though execution risks remain.