2023-12-21 18:33:18 ET
Summary
- Townsquare Media, Inc. operates a network of radio stations and provides digital media and marketing solutions to small and medium businesses.
- The company's stock could see an upside if inflation and interest rates continue to moderate and as political advertising increases in 2024.
- Until management proves it can reignite top-line revenue growth, I'm on Hold for Townsquare Media, Inc. stock.
A Quick Take On Townsquare Media
Townsquare Media, Inc. ( TSQ ) provides an array of digital media and marketing solutions to small and medium businesses and operates a network of smaller market radio stations in the United States.
If inflation and interest rates continue to moderate into 2024, in combination with likely heavy political advertising, it could produce a nice upside to Townsquare Media, Inc. stock for investors with a risk-on approach.
I’m more cautious, so my outlook is a Hold until management proves it can reignite topline revenue growth.
Townsquare Media Overview And Market
Purchase, New York-based Townsquare Media provides a range of digital market services to small businesses and also owns a network of terrestrial radio stations.
The firm is headed by Bill Wilson, who joined in 2010 and was previously President of AOL Media and SVP Worldwide Marketing at Bertelsmann Music Group ((BMG)).
The company’s primary offerings include the following:
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Interactive - online marketing services for small businesses
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IGNITE - programmatic advertising for smaller markets
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Media - portfolio of hundreds of terrestrial radio stations in the U.S.
TSQ was formed from the predecessor firm Regent Broadcasting, and has combined a cash-generating radio station company with digital advertising capabilities.
According to a 2023 market research report by Expert Marketing Research, the global market for digital marketing was estimated at $363 billion in 2023 and is forecast to reach nearly $1.1 trillion by 2032.
This represents a forecast CAGR (Compound Annual Growth Rate) of 13.1% from 2024 to 2032.
The main drivers for this expected growth are a growing population of people consuming content through digital channels and increasing availability of precise measurements of campaign performance.
Also, the expenditures on mobile advertising have grown to around 40% of the budget in major Western European markets.
Major competitive or other industry participants focused on large market players include:
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Omnicom Group
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The Interpublic Group Of Companies
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WPP plc
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Publicis Groupe
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Dentsu
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Havas SA
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Accenture Interactive
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Others.
Townsquare Media’s Recent Financial Trends
Total revenue by quarter (blue columns) has fallen year-over-year due to softness in its Interactive segment; Operating income by quarter (red line) has been uneven due in part to seasonal factors:
Gross profit margin by quarter (green line) has trended slightly lower; Selling and G&A expenses as a percentage of total revenue by quarter (amber line) have increased slightly in recent quarters due to cost containment efforts:
Earnings per share (Diluted) have fallen materially in the most recent quarter because of a non-cash impairment charge of $31 million, of which $23.6 million was related to the firm’s FCC licenses and related increase in income tax provision.
(All data in the above charts is GAAP.)
In the past 12 months, TSQ’s stock price has been volatile, increasing by a net of 47.74%:
For balance sheet results, the firm ended the quarter with $38.0 million in cash and equivalents and $499.1 million in total debt, all of which was classified as long term.
Over the trailing twelve months, free cash flow was $42.9 million, during which capital expenditures were $14.1 million. The company paid $7.6 million in stock-based compensation in the last four quarters.
Valuation And Other Metrics For Townsquare Media
Below is a table of relevant capitalization and valuation figures for the company:
Enterprise Value / Sales | 1.5 |
Enterprise Value / EBITDA | 7.2 |
Price / Sales | 0.4 |
Revenue Growth Rate | 1.4% |
Net Income Margin | -8.5% |
EBITDA % | 20.9% |
Market Capitalization | $179,220,000 |
Enterprise Value | $695,260,000 |
Operating Cash Flow | $57,040,000 |
Earnings Per Share (Fully Diluted) | -$2.40 |
2024 FWD EPS Estimate | $1.62 |
Free Cash Flow Per Share | $2.53 |
SA Quant Score | Hold - 2.85 |
(Source - Seeking Alpha.)
Below is an estimated DCF (Discounted Cash Flow) analysis of the firm’s projected growth and earnings:
Based on the DCF, using a discount rate of 10% (10-year Treasury (US10Y) at 4% plus 6% equity risk premium) and forward free cash flow per share assumption of $2.53, the firm’s shares would be valued at approximately $9.08 versus the current price of $10.77, indicating they are potentially currently overvalued by about 18.6%.
Commentary On Townsquare Media
In its most recent earnings call (Source - Seeking Alpha ), management’s prepared remarks highlighted strong digital advertising revenue and profit growth for the first three quarters of 2023.
However, Q3 revenue for its Interactive segment dropped by 13% YoY due to higher churn rates and slower sales cycles.
Management expects improved revenue and subscriber metrics in 2024 from reduced churn rates.
Analysts questioned the leadership about broadcast revenue and advertising trends.
Leadership said that broadcast revenue has declined, but the firm is increasing its market share. National broadcast advertising has dropped more than local advertising.
However, management expects political advertising to increase markedly in 2024 due to the presidential and representative election cycle.
For the quarter’s results, overall total revenue fell by 4.6% year-over-year and gross profit margin slid by 1.1%.
Selling and G&A expenses as a percentage of revenue increased by 1.0% YoY, and operating income was 21.8% lower, at $20.1 million for the quarter.
The company's financial position is solid, with plenty of liquidity, significant debt but strong free cash flow.
Looking ahead, full-year 2023 revenue is expected to decline by 2.5% versus 2022’s results.
If achieved, this would represent a reversal in revenue versus 2022’s growth rate of 10.8% over 202_.
In the past twelve months, the firm's EV/EBITDA valuation multiple has risen by about 14% net, as the chart from Seeking Alpha shows below:
A potential upside catalyst to the stock could include improving advertising from political sources and from 2023 being a "reset year," according to management.
The firm’s current dividend yield is an expected 6.9%, so interested investors would presumably be paid to wait and see if the firm can generate improved financial results in what is likely going to be a very politically active year in 2024.
The company's focus on digital-first marketing and advertising development, funded by its radio station segment’s positive cash flow and focused on markets outside the top 50 cities, is an interesting approach.
If inflation and interest rates continue to moderate into 2024, the political year combination could produce a nice upside to the stock for investors with a risk-on approach.
I’m more cautious, so my outlook for Townsquare Media, Inc. stock is Hold until management proves it can reignite top line revenue growth.
For further details see:
Townsquare Media Looks To 2024 Political Year Advertising Increase