Digital Expansion And Cash Generation Will Gradually Offset Structural Radio Declines

Catalysts

About Townsquare Media

Townsquare Media is a digital first local media company that combines programmatic advertising, owned and operated digital properties, subscription marketing solutions and broadcast radio to serve markets outside the top 50 in the United States.

What are the underlying business or industry changes driving this perspective?

• Expansion of the high margin Townsquare Ignite programmatic platform and third party media partnerships across more local broadcasters and agencies, which could compound digital advertising revenue growth and support digital segment profit margins in the low to mid 20 percent range.
• Scaling of Townsquare Interactive after its sales force rebuild, combined with a structurally lower cost base and AI enabled efficiencies, may return the SaaS business to top line growth in 2026 while sustaining profit margins above 30 percent, potentially driving earnings growth faster than revenue.
• Stabilization of remnant digital advertising at a lower run rate by the back half of 2026, following industry wide search traffic resets tied to AI, could remove a major drag on reported growth and allow mid single digit digital revenue gains to flow through more directly to EBITDA.
• An ongoing shift of the revenue mix toward digital solutions, which already represent a majority of net revenue and segment profit, may gradually offset structural radio declines and support consolidated net margin expansion if higher margin digital businesses continue to grow faster than legacy broadcast.
• Consistent cash generation, aided by lower cash taxes through at least 2028 and potentially lower interest expense from deleveraging, could create room for accelerated debt paydown and sustained dividends, which in turn may affect equity value through lower net leverage and changes in earnings per share.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Townsquare Media's revenue will remain fairly flat over the next 3 years.
• Analysts assume that profit margins will shrink from 4.2% today to 3.4% in 3 years time.
• Analysts expect earnings to reach $15.2 million (and earnings per share of $0.82) by about December 2028, down from $18.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $18.9 million in earnings, and the most bearish expecting $12.9 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 22.2x on those 2028 earnings, up from 4.4x today. This future PE is greater than the current PE for the US Media industry at 15.4x.
• Analysts expect the number of shares outstanding to grow by 2.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.5%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Structural declines in search driven traffic to publisher websites as AI assistants and AI generated answers displace traditional search could permanently reduce high margin remnant advertising revenue rather than merely resetting it to a lower plateau, which would pressure digital segment profit margins and constrain consolidated earnings growth.
• The broadcast radio segment is expected to remain in secular decline with mid single digit to low single digit annual revenue contraction even in nonrecessionary environments. If cost cuts or AI driven efficiencies fail to keep pace, this mature cash cow may shift from a profit stabilizer to a drag on consolidated net margins and cash flow.
• Townsquare Interactive is relying on aggressively rebuilding a materially reduced sales force to reignite top line growth in 2026. If talent acquisition, training or competitive SaaS offerings slow this ramp, the business could remain revenue stagnant while incremental investments dilute its currently elevated profit margins and limit earnings expansion.
• The strategy to scale capital light third party media partnerships and programmatic services assumes sustained advertiser demand and share gains in smaller markets. Economic weakness, intensified competition from larger digital platforms or underperforming partners could cap revenue growth in Ignite and keep segment margins below historical levels.
• High leverage with net debt of $460 million and net leverage of 4.71 times leaves the company exposed to funding costs and cyclical advertising downturns. If interest rates remain elevated or macro conditions weaken, more cash may need to be diverted from growth initiatives and dividends to debt reduction, weighing on net income and equity value.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $13.5 for Townsquare Media based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $15.0, and the most bearish reporting a price target of just $12.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $440.9 million, earnings will come to $15.2 million, and it would be trading on a PE ratio of 22.2x, assuming you use a discount rate of 12.5%.
  
• Given the current share price of $4.89, the analyst price target of $13.5 is 63.8% higher. Despite analysts expecting the underlying business to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.