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Now, with digital shenanigans like account takeovers and synthetic identities running rampant, we need more than just a drivers license and a winning smile to prove who we are. Enter Clear Secure, the company thats using cuttingedge tech to make identity verification smoother than a jazz saxophone solo. Theyre basically building the VIP lane for life, work, and travel – and who doesnt love skipping the queue Presentation of the Business Clear Secure is a publicly traded company thats basically like the superhero of identity verification. They swoop in with their fancy technology and make it easier and safer for people to do all sorts of things, from catching a flight to attending a Taylor Swift concert because who has time to wait in line when you could be belting out Shake It Off. Their claim to fame Clear Plus, a subscription service that lets you bypass those soulcrushing airport security lines faster than you can say TSA PreCheck. Founded in 2010 by Caryn SeidmanBecker and Kenneth Cornick, Clear Secure is headquartered in the bustling metropolis of New York City where, presumably, everyone is in a hurry. And theyve been racking up accolades faster than a speeding bullet, even snagging a spot on Fast Companys Most Innovative Companies list in 2023. But hold your horses While theyre currently operating in 58 airports across the US, there are over 5,000 public airports in the good ol USA and a gazillion more worldwide. Talk about a growth runway Imagine a future where you can use Clear Secure to waltz past security at every airport, stadium, and maybe even your local donut shop because who wants to wait for a cruller. The possibilities are as vast as the universe and hopefully a lot less terrifying. Presentation of the Business Model Clear Secures business model is like a threering circus, with multiple shows happening simultaneously to bring in the cash Subscription Fees Paid by End Users This is the star of the show, the main attraction that draws in the crowds. Clear Plus, their VIP subscription service, lets you bypass those agonizing airport security lines faster than a cheetah on a sugar rush. Its the ultimate timesaver for frequent flyers who value every second they can shave off their journey because who wants to spend their precious vacation time stuck in a queue. In Q3 2024, they had a roaring 7.2 million active Clear Plus members, a 12.2 jump compared to the previous year. Transaction Fees Paid by Business Customers Behind the scenes, Clear Secure is busy making deals with businesses who need topnotch identity verification. Think banks, healthcare providers, and other organizations that want to make sure youre actually you and not some sneaky imposter trying to steal your identity... or worse, your credit card points. Every time they verify someones identity, the cash register rings. Licensing Fees Paid by Business Customers Clear Secure is also a generous soul, sharing its technological prowess with other companies who want to integrate their identity verification magic into their own systems. Its like sprinkling fairy dust on their products and services, making them extra secure and userfriendly and hopefully bringing in a hefty chunk of change for Clear Secure. Think of it this way end users like you and me pay for the convenience of Clear Plus, while businesses pay for the security and efficiency of Clear Secures technology. Its a beautiful symbiotic relationship, like a bee and a flower except instead of pollen, theyre exchanging money. Heres the secret sauce that makes their business model so tasty Strong network effects Its like a party – the more people who show up, the more fun it is. The more people use Clear Secure, the more valuable it becomes for everyone involved. Efficient member acquisition Theyre like the Pied Piper of identity verification, attracting new members with the irresistible lure of shorter lines and smoother experiences. High member retention rates Once youve tasted the sweet nectar of skipping the line, youre hooked for life. Clear Secures members are loyal, and thats good news for the companys bottom line. This winning combination is like a finely tuned engine, driving growth and profitability and making investors do a happy dance. As Clear Secure expands its empire and rolls out new products and services, its poised to generate some serious cash and hopefully make our lives a little less chaotic. Total Cumulative Enrollments, Total Platform Users, and Net Member Retention Clear Secure has been enrolling customers faster than a college freshman signs up for extracurriculars and free pizza. Their Total Cumulative Enrollments have climbed to a whopping 26.5 million, and their Total Platform Uses are skyrocketing like a SpaceX rocket, reaching 220.4 million But heres the catch their Net Member Retention is doing a swan dive from 86.3 in 2023 to 81.5 in the third quarter of 2024. Now, were not saying its time to panic and jump ship unless the ship is on fire, then by all means, jump. But for a business built on recurring revenue, keeping those members happy and coming back for more is like keeping your pet goldfish alive – its kind of important. So, while the growing user base is exciting like a puppy chasing its tail, that declining retention has us raising an eyebrow and maybe investing in a goldfish life vest. Who are their Clients Clear Secures client list is more diverse than a box of crayons. Theyve got everyone from airports and airlines to stadiums and even healthcare providers using their technology. Its like a Whos Who of organizations that want to make sure you are who you say you are and not some mischievous doppelganger. Heres a glimpse at the Clear Secure fan club Airports Theyre all about Clear Plus, the service that lets you glide through security like a figure skater on an Olympic rink. Airlines They want their frequent flyers to be as happy as a clam at high tide, so they partner with Clear Secure to offer them the gift of time and sanity. Credit card companies Theyre always looking for ways to make their cardholders feel like royalty, and Clear Plus is the perfect perk. Other businesses From healthcare providers to financial institutions, Clear Secure is helping businesses of all stripes verify identities and keep the bad guys at bay. This diverse client base is like a safety net, protecting Clear Secure from the ups and downs of any single industry because lets face it, the world can be an unpredictable place. Where do they Operate Clear Secures technology is like a Swiss Army knife but hopefully less likely to be confiscated by the TSA. Its popping up everywhere Aviation Airports are their main stomping ground, with Clear Plus helping travelers avoid those dreaded security lines. Sports and entertainment Stadiums and concert venues are getting in on the action, using Clear Secure to give fans a fast pass to the fun. Healthcare Even healthcare providers are using Clear Secure to make sure theyre treating the right patient because accidentally operating on the wrong person is generally frowned upon. Financial services Banks and other financial institutions are using Clear Secure to keep your money safe and sound and out of the hands of those pesky cybercriminals. This versatility is a huge plus for Clear Secure. It means they can expand into all sorts of new markets and verticals, kind of like a chameleon changing colors but hopefully with less camouflage and more profits. Market Analysis The market for secure identity verification is hotter than a habanero pepper 🌶️ This sizzling growth is fueled by a few key trends The rise of the machines and digital channels As more people live their lives online, the need to prove youre a real human and not a robot overlord is becoming increasingly important. Identity theft woes Identity theft is about as fun as a root canal. Clear Secure is helping to fight this scourge and protect people from having their identities stolen and used for nefarious purposes, like opening a credit card in your name and buying a lifetime supply of catnip. Biometric boom Fingerprints, facial recognition – biometrics are all the rage these days. Clear Secure is riding this wave, using biometrics to make identity verification as quick and painless as possible. With its innovative technology and knack for being in the right place at the right time, Clear Secure is poised to take a big bite out of this growing market and hopefully avoid any indigestion. Growth Perspective Clear Secures growth trajectory is looking as impressive as a gymnast doing a triple backflip Their revenue has been growing at a rate of 3040 annually in recent years, like a beanstalk reaching for the sky. In 2021, their revenue was a cool 250 million, and now its a whopping 740 million. Talk about a glowup Clear Secures future is looking brighter than a disco ball ✨ Theyre riding the rocket ship of the secure identity verification market and have a whole galaxy of growth opportunities ahead of them Airport domination Theyre not stopping at 58 airports. Clear Secure plans to conquer the airport world, one security line at a time. Vertical ventures Healthcare, finance, you name it – Clear Secure is setting its sights on new industries to bring its identity verification magic to the masses. Product parade Theyre constantly cooking up new products and services, like their employee identity product, to make sure youre always in the fast lane and not stuck in the slow lane with the Sunday drivers. With all these growth prospects, Clear Secure is like a kid in a candy store but hopefully with a bit more selfcontrol and a lot less sugar. Valuation Okay, lets talk numbers. Clear Secures current market capitalization is 3.78 billion. Their net income for the last 12 months A cool 80 million. And their stock price is sitting pretty at 27 per share. But heres the real kicker their free cash flow is a whopping 240 million. And get this – they only have 120 million in debt and a hefty 500 million in cash. They could basically pay off their debt faster than you can order a pizza The math Trailing PricetoEarnings PE Ratio 3.78 billion 80 million 47.25x Thats higher than a giraffe on stilts Free Cash Flow Yield 240 million 3.78 billion 6.35 Thats more cash than a Scrooge McDuck money swim Reverse DCF With a free cash flow per share of 2.63 a current price of 27 and 0.50 dividend, If the keep the same valuation multiples, Clear Secure needs to keep those cash flows growing at about 8 per year for the next 10 years to give investors a tasty 15 compound annual growth rate CAGR. Can they pull it off Time will tell, but were keeping our eyes peeled and our calculators handy Now the big question Why Net Income is So Low and Free Cash Flow so high You might be scratching your head and wondering, Why is Clear Secures free cash flow higher than a giraffe on stilts, while their net income seems to be playing hideandseek Well, fear not, dear reader, for we have the answers and a few jokes to keep you entertained The devil is in the details Deferred Revenue, The Case of the Vanishing Cash Clear Secures Clear Plus service is like a magic trick – the money appears upfront, but the revenue slowly reveals itself over time. Customers pay for the entire year upfront, which means Clear Secure gets a big pile of cash right away chaching. But they cant record all that cash as revenue immediately. Instead, its like theyre putting it in a time capsule, slowly releasing it as revenue each month. This creates a delightful situation where their cash flow is higher than their net income in any given period. In a nutshell Clear Secures high free cash flow is partly due to their subscriptionbased business model and how they compensate their employees. Its like a magician pulling a rabbit out of a hat – it seems impossible, but theres a perfectly logical explanation even if it involves some accounting sleight of hand. Now, heres something that really grinds our gears Clear Secures share count is growing faster than a Chia Pet in a greenhouse. Just take a gander at these numbers 2024 94 279 071 2023 90 709 811 2022 81 117 184 2021 75 515242 Do a little math, and youll see thats a whopping 25 increase in outstanding shares between 2021 and 2024 Thats like inviting the whole neighborhood to your pizza party – sure, its more fun, but your slice just got a whole lot smaller. We get it, sometimes a little dilution is necessary, especially for young companies trying to attract top talent with stock options. Its like offering a bonus cookie to your star employees – a little incentive to keep them happy and baking those sweet, sweet profits. But this level of dilution Its waving a giant red flag in our faces. Now, before you call us out for being overly cautious, hear us out. Investing is like playing detective – youre searching for clues, trying to uncover any hidden dangers lurking beneath the surface. And this dilution Its a potential suspect. Clear Secures capital allocation strategy seems a bit... off. In the last twelve months, they raked in a cool 240 million in free cash flow, while only spending a measly 13 million on capital expenditures thats both maintenance and growth, mind you. But get this – they splurged a whopping 247 million on stock buybacks and shelled out another 130 million in dividends. Now, were all for rewarding shareholders, but this seems excessive, even for a company with low capital requirements. Its like buying a whole wardrobe of new clothes when you havent even paid your rent yet – priorities, people We understand that Clear Secure might not need a ton of capital to grow, but this level of capital return seems... irresponsible. Its like theyre trying to impress their friends with fancy gadgets instead of investing in their future. This raises some serious questions about their longterm vision. Are they prioritizing shortterm gains over sustainable growth Are they running out of lucrative investment opportunities Or are they simply trying to distract us from other underlying issues, like that pesky share dilution Whatever the reason, this aggressive capital return policy is another no in our book. Its like finding a worm in your apple – it might not ruin the whole thing, but it definitely leaves a bad taste in your mouth. We know, we know, it might seem silly to get hung up on this for a small, fastgrowing company. But heres our philosophy when it comes to investing, its more about finding reasons to say no than yes. Were like those picky eaters who scrutinize every ingredient before taking a bite. Think of it this way were constantly weighing the nos against the yeses, the risks against the rewards. And this dilution Its a no thats definitely tipping the scales. Its a potential longterm issue that could water down our returns faster than you can say stock split. So, while were still intrigued by Clear Secures potential, this dilution situation is giving us pause. Were keeping a close eye on it, just like a hawk watching a field mouse but hopefully with less predatory intent. Investment Decision Now, for the milliondollar question or in this case, the 3.78 billion question should you invest in Clear Secure Well, heres the thing. Theyve only been profitable since 2022, and while their ROIC has made a miraculous growth from a measly 3 in 2023 to a whopping 28 this year, were not quite ready to throw all our eggs in their basket unless those eggs are made of solid gold, then maybe well reconsider. Truth be told, several things are giving us pause. Weve already spilled the tea on the share dilution and the questionable capital allocation strategy. And lets be honest, those two factors alone are enough to make us raise an eyebrow or maybe even two. Remember our investment strategy Its all about finding reasons to say no and carefully weighing those concerns against the potential rewards. And in Clear Secures case, the nos are starting to pile up like dirty laundry. So, while were still captivated by their innovative technology and impressive growth trajectory in the recent years, were not quite ready to jump on the bandwagon just yet. Its like watching a dazzling fireworks display from a safe distance – we can appreciate the beauty and excitement without getting burned. Well definitely keep Clear Secure on our watchlist, monitoring their progress and waiting for those red flags to turn green. But for now, its a no from us. Were not saying theyre a bad investment, just that they dont fit our criteria. Its like trying to squeeze a square peg into a round hole – it just doesnt work. Conclusion Clear Secure is like the cool kid in school – everyone wants to be their friend. Theyre making identity verification faster, easier, and more secure and a lot less boring. With a possible bright future ahead of them, Clear Secure is definitely a company to watch but maybe not invest in just yet. 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