Short seller argues Clear’s value becoming murky as airport biometrics expand

Clear is one of the most recognizable brands in biometrics, with more than 30 million members and a presence in more than 50 airports. But short-seller Spruce Point Capital Management is warning that its valuation is not supported by its fundamentals.

The downside risk is as much as 30 to 50 percent, Spruce Point says, setting a share price target of $12.65 to $17.70. Clear opened trading on Thursday at $24.80 on the New York Stock Exchange.

In its report “What Are YOU Hiding?”, Spruce Point says Clear’s value proposition is challenged by the inherent dynamics of airport passenger volumes.

“When wait times through security checkpoints are low, there is a low value proposition to these services,” the short-seller says. “However, when wait times are high, there is a greater value proposition. The challenge facing both TSA and CLEAR services is that as membership and usage increases, the wait times also increase.”

The potential for bottlenecks and delays erodes Clear’s value proposition.

At the same time, Clear’s ratio of “customer lifetime value” to “customer acquisition cost” has dropped worryingly, from 22X to 10X.

Forays into healthcare, sports and entertainment “have largely fallen short and do not make money,” Spruce Point claims.

Clear’s deferred revenue also dropped below its amount recognized since the company began reporting in 2021, which Spruce Point takes as a possible sign of revenue challenges ahead. And then there are fears of a recession in the U.S. that could reduce air travel volumes.

Delta and United Airlines have each reduced their stake in Clear, and are now among the company’s partners working with the TSA to implement its Touchless ID program. The adoption of digital ID by TSA also extends to baggage dropping, which Clear does not. And TSA is busily deploying Idemia’s CAT-2 scanners to carry out face biometrics checks, reducing the wait times which, as noted above, are crucial to Clear’s value proposition.

The report questions Clear’s accounting and financial reporting practices, including changes to the way some metrics are reported. It takes issue with the share class structure and the turnover among executives, with CEO Caryn Seidman Becker the only one remaining from the company’s 2021 IPO.

Biometric Update reached out to Clear for comment, and will update this article if a response is received.

Article Topics

biometrics  |  CLEAR  |  financial results  |  stocks