CLEAR Secure (YOU)

Identity verification company CLEAR Secure (NYSE:YOU) announced better-than-expected revenue in Q3 CY2025, with sales up 15.5% year on year to $229.2 million. Its non-GAAP profit of $0.37 per share was 17.8% above analysts’ consensus estimates.

Company Overview

Recognized by its signature blue lanes and biometric pods at airport checkpoints across America, CLEAR Secure (NYSE:YOU) provides biometric identity verification technology that allows subscribers to bypass regular security lines at airports and access secure experiences at various venues.

Organizations generate a lot of data that is stored in silos, often in incompatible formats, making it slow and costly to extract actionable insights, which in turn drives demand for modern cloud-based data analysis platforms that can efficiently analyze the siloed data.

CLEAR Secure's competitors include government-operated trusted traveler programs like TSA PreCheck and Global Entry, as well as emerging biometric identity verification companies such as IDEMIA and Telos ID that operate in similar spaces.

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, CLEAR Secure’s sales grew at an impressive 29.9% compounded annual growth rate over the last five years. Its growth surpassed the average software company and shows its offerings resonate with customers, a great starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within software, a half-decade historical view may miss recent innovations or disruptive industry trends. CLEAR Secure’s annualized revenue growth of 23.2% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

This quarter, CLEAR Secure reported year-on-year revenue growth of 15.5%, and its $229.2 million of revenue exceeded Wall Street’s estimates by 1.9%.

Looking ahead, sell-side analysts expect revenue to grow 12.7% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and indicates its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.

CLEAR Secure reported 7,683 customers at the end of the quarter, a sequential increase of 57. That’s worse than what we’ve observed previously, but we wouldn’t put too much weight on one quarter given its healthy revenue trend over the last three years.

What makes the software-as-a-service model so attractive is that once the software is developed, it usually doesn’t cost much to provide it as an ongoing service. These minimal costs can include servers, licenses, and certain personnel.

CLEAR Secure’s gross margin is one of the best in the software sector, an output of its asset-lite business model and strong pricing power. It also enables the company to fund large investments in new products and sales during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an elite 86% gross margin over the last year. That means CLEAR Secure only paid its providers $14.03 for every $100 in revenue.

The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. CLEAR Secure has seen gross margins improve by 0.1 percentage points over the last 2 year, which is slightly better than average for software.

This quarter, CLEAR Secure’s gross profit margin was 86.2%, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

CLEAR Secure has been a well-oiled machine over the last year. It demonstrated elite profitability for a software business, boasting an average operating margin of 19.2%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, CLEAR Secure’s operating margin rose by 5 percentage points over the last two years, as its sales growth gave it operating leverage.

In Q3, CLEAR Secure generated an operating margin profit margin of 23%, up 5.3 percentage points year on year. The increase was solid, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

CLEAR Secure has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the software sector, averaging an eye-popping 33.4% over the last year.

CLEAR Secure burned through $53.47 million of cash in Q3, equivalent to a negative 23.3% margin. The company’s cash burn was similar to its $37.91 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings.

Over the next year, analysts predict CLEAR Secure’s cash conversion will improve. Their consensus estimates imply its free cash flow margin of 33.4% for the last 12 months will increase to 36.3%, it options for capital deployment (investments, share buybacks, etc.).

Companies with more cash than debt have lower bankruptcy risk.

CLEAR Secure is a profitable, well-capitalized company with $530.6 million of cash and no debt. This position is 15.8% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly CLEAR Secure blew past analysts’ EBITDA expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. Zooming out, we think this was a solid print. The stock remained flat at $34.57 immediately after reporting.

Before investing in or passing on CLEAR Secure, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

There is a lot to like about CLEAR Secure. For starters, its revenue growth was strong over the last five years. And while its expanding operating margin shows it’s becoming more efficient at building and selling its software, its admirable gross margin indicates excellent unit economics. Additionally, CLEAR Secure’s impressive operating margins show it has a highly efficient business model.

CLEAR Secure’s price-to-sales ratio based on the next 12 months is 3.4x. Looking at the software landscape today, CLEAR Secure’s fundamentals really stand out, and we like it at this price.

Wall Street analysts have a consensus one-year price target of $39.38 on the company (compared to the current share price of $34.57), implying they see 13.9% upside in buying CLEAR Secure in the short term.