Analysis: YOU

As we quickly touched on earlier today, Action Alerts PLUS holding Clear Secure (YOU) reported March quarter results that bested top and bottom-line results with the company guiding the current quarter above consensus expectations and declaring a $0.20 special dividend.

For the current quarter, Clear sees revenue in the range of $139-$141 million vs. the $133.31 million consensus and $103 million in the year-ago quarter. Management also shares it sees further improvement in total bookings, which should rise to $158-$160 million vs. $149.7 million in the March quarter, which was up 38.39% year over year, and $122.9 million in the June 2022 quarter.

With those results, why are the shares trading off this morning?

Our thought is it relates to a few things. First, after rising considerably on a sequential basis, Clear's March quarter bookings were largely flat quarter to quarter. We suspect this reflects the company adding just four airports during the quarter and the dip in member retention.

During the March quarter, member retention fell 400 basis points year over year to 91.3, which was also down modestly vs. the prior quarter. Also impacting bookings is the timing associated with Clear's TSA PreCheck Enrollment Provided by CLEAR, which is now expected to launch in mid-year and be a contributor in 2H 2023 and beyond. And, so we are clear, the company does not have any expectations for PreCheck baked into its outlook for the current quarter.

The longer-term opportunity, as we've discussed before, with the company's airport channel is further expansion into the top 75 airports vs. 52 exiting the March quarter and opening additional lanes at existing airports. Given the 19 airports added over the last two years, this suggests a several-quarter effort.

On the earnings call, management also shed some light on the LinkedIn partnership announced during the quarter, sharing it sees that relationship more as boosting awareness of its identity as a service platform. Management also discussed a more recent relationship with Health Gorilla to allow consumers secure access to their health information. We see both as the start of initiatives to move the company beyond its core airport business, and we see that expansion reducing potential concerns over end market concentration.

During the quarter, Clear generated $51.3 million in free cash flow, bringing its cash and equivalents to $748 million after buying back 281,838 Class A shares at an average price of $22.94 per share. Against that, the company announced its second special dividend in the last several months. Its prior special dividend of $0.25 per share was paid in December and this new one of $0.20 per share will be paid on May 25 to shareholders of record on May 18.

With consumers continuing to travel and multiple opportunities for Clear to grow its business both in and out of the airport channel, we are going to use today's post-earnings pullback to add to our Clear position. We suspect the Wall Street community, much like us, will see the report as a positive one, with the special dividend adding credence to the company's narrative and prospects. From a technical perspective, we see strong support for YOU shares near the $23 level.

We will keep our long-term $37 target intact as well as our One rating.

After you receive this Alert, we will buy 560 shares of Clear Secure at or near $23.65. Following the trade, YOU shares will account for roughly 3.5% of the portfolio.

(Please note that we are looking to execute these trades at or near the share price mentioned above. Once the trade is completed, subscribers can see the trade's executed price here. Be sure to toggle the chart to sort by Purchase Date.)