Today’s airport security systems and processes are far more complex and time consuming than in previous decades. 

Prior to the September 11 attacks, security checkpoints were far less thorough than today. Passengers could even make it to the gate without needing a boarding pass or identification. 

In the aftermath of the terror attacks, passengers were required to undergo security checks administered by Transportation Security Administration (“TSA”) officers. This process typically includes going through multiple security checkpoints and bag checks conducted by X-ray.

With added security came longer queues. On average, TSA officers screen roughly 2.5 million passengers across 440 airports across the U.S.

To solve the problem of long queues, TSA launched its PreCheck program in 2011. Those approved under this program can skip security checks and hop on shorter queues.

However, as more and more people signed up, the PreCheck program saw diminishing returns, with PreCheck queues sometimes taking longer than standard security.

Since the TSA performs a crucial role in airport operations, disruptions to its operations are detrimental to air travel.

Unfortunately, that nightmare scenario is playing out today. 

Funding for the Department of Homeland Security (“DHS”)—TSA’s parent agency—has been in a state of flux for more than a month due to legislative gridlock. 

The funding impasse has resulted in longer waiting times. For example, waiting time in the Hartsfield-Jackson Atlanta International Airport—the world’s busiest airport—has topped four hours long in recent weeks.

While funding was frozen, TSA officers worked without pay, forcing some to miss work or quit entirely. And with the most recent Senate-approved funding bill failing to get enough votes in the House of Representatives, the shutdown seems to be poised to continue. 

Amid this chaos, Clear Secure (YOU) has risen as the sole winner of this travel calamity.

Clear Secure built its business on passenger speed and convenience through its identity verification platform and CLEAR+ membership plans.

Unlike TSA’s PreCheck, CLEAR+ memberships do not require passing a tedious background check. Moreover, CLEAR+ members are also eligible for PreCheck membership, enabling them to enjoy the perks of the TSA’s PreCheck program.

With the DHS funding impasse wreaking havoc to U.S. airports, Clear Secure has seen an uptick in membership signups. Its app has been downloaded 289,000 times since the start of March. Its stock is also up 35% year-to-date. 

CLEAR+ is currently available at 59 airports and has massively grown its membership over the past few years. At the start of 2022, it boasted nearly 4 million CLEAR+ members. 

Today, that figure stands at over 39 million on top of a retention rate of 86%. In other words, once someone signs up for CLEAR+, getting rid of the service is unlikely to happen.

On top of its airport security offerings, membership plans can also be customized to include access to VIP concierge services, easy access to arenas and stadiums, and more. 

Clear Secure’s membership base and recurring revenues have enabled it to improve its business in recent years while capitalizing on the post-pandemic travel recovery.

The company closed 2022 with revenues of $255 million. By 2025, that number improved to $900 million.

Meanwhile, its Uniform return on assets (“ROA”) has vastly improved as well. After generating negative returns in 2021, the company’s Uniform ROA turned positive, rising from 7% in 2022 to 72% last year.

Wall Street analysts expect this improvement to continue over the next two years, with returns expected to climb to 117%. However, the market is less optimistic, expecting returns to drop to 66% by 2030.

The market’s muted expectations reflect concerns about Clear Secure’s ability to sustain its current momentum. 

As Clear Secure continues to provide a better option for travelers in a rush, and as the company expands its offerings, returns should continue to improve.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research

Today’s analysis highlights the same insights we share with our FA Alpha Members. If you want to an get in-depth analysis of market trends and uncover undervalued stocks, become an FA Alpha Member today.