CLEAR’s Growth Paradox: 20% Stock Drop Shows How Airport Security Success Backfires – View from the Wing

As of this writing, CLEAR (Clear Secure Inc., NYSE: YOU) shares are down 20% this morning after the company revealed that new signups were down to a trickle.

There were 7.15 million active Clear Plus members in the third quarter, according to a shareholder letter released Thursday. That was up just 0.8% from the prior three-month period, marking the smallest quarterly gain in at least two years.

In fairness, even after the drop the stock is up about 70% in six months and over 50% year-to-date.

Their value proposition to the customer is a faster security experience at the airport than TSA PreCheck. However,

• Their current biometric identification methods take longer than just showing a drivers license, and TSA makes them often require passengers to also show a drivers license.
• So it really comes down to having shorter lines that bypass standard queues.
• But the more people they sign up, the longer their own queues.

There’s a limited amount of space in terminals that they can acquire and staff, and limited TSA checkpoint throughput that they can access. Those don’t fully scale. So the more people they sign up, the less good the member experience and the less worthwhile the service.

Ultimately they have visions of a ‘walk-through experience’ that genuinely takes no time for a passenger to be identified. This would speed up CLEAR and allow them to grow without degrading the passenger experience (to a point). However, they are nowhere close to this.

They’ve raised price several times in the last few years, and clamped down on discounts. For instance, they are part-owned by Delta and by United and the discounts to SKyMiles and MileagePlus elites have been scaled back.

CLEAR got tremendous member growth from rebating the full cost of membership through American Express. They’d no doubt retain some of those customers if that merchant-funded offer was pulled, but they’d lose a significant number also – and when their member numbers decline their stock takes a hit. In April, the first of two one-year extensions in the Amex deal was exercised.

There are other places they could go for (free or discounted) member growth, but they can’t go everywhere. American Airlines blocks them from even setting up in terminals they control preferring slow Analogic screening devices instead. So AAdvantage is unlikely fertile ground to exploit.

Ultimately the paradox of CLEAR is that the more they grow, they less successful they become.

(HT: @crucker)