Townsquare Media hit a milestone in the first quarter as more than half its revenue (54%) and profits (63%) were derived and driven by digital products. Townsquare Ignite, its digital advertising segment, is “the strongest growth engine in the company,” CEO Bill Wilson said Wednesday. But Townsquare Interactive had a challenging quarter and 2023 is going to be a “reset year” for the subscription-based digital marketing services segment.
Speaking with analysts during the company’s quarterly earnings call, Wilson said the digital ad sales segment “was again the largest driver of growth in the first quarter, with net revenue increasing 15.4% year-over-year, and profit increasing 22.9%.” He called that “impressive in any environment and even more impressive in the current macro environment.”
Helping spur those gains is Townsquare’s expanding online audience, which hit an all-time high of 84 million average monthly uniques in the first quarter. With an army of former AOL employees, Townsquare builds all its digital products in house, giving it total control of the client relationship. Wilson said that “translates to a better customer experience and higher client retention rates.”
Moreover, there are mountains of first party data to be mined. Having “insights about consumer behaviors, audience interest and purchase intent” help Townsquare sellers deliver “real results with strong ROI for our clients and gives us a strategic advantage over our local competition,” Wilson added.
Challenging Quarter For Digital Marketing Services
Meanwhile, Townsquare Interactive, the much vaunted, often copied, subscription-based digital marketing services division, hit some snags in the quarter. The issues are expected to continue through the rest of 2023, resulting in what the company called a “muted” financial performance with TSI billings pacing down 7% in the second quarter after dipping 1.3% to $21.6 million in Q1. TSI customers are independent local businesses with less than $5 million in annual revenue. “Unfortunately, this demographic in particular is vulnerable to the current macroeconomic environment, battling high inflation, labor shortages, higher wages, higher interest rates, etc.,” Wilson said on the earnings call. “This has contributed to a period of higher attrition among our subscribers.”
There has also been higher employee turnover in TSI’s customer service operations after the company ordered everyone back into the office last year. Wilson said they took a step back, did some forensics on the segment and made “a number of important changes to our customer service platform that we believe will be very beneficial to our clients and thus client retention in the long-term,” And despite what Executive VP/CFO Stuart Rosenstein called a “challenging quarter” for TSI, the company remains bullish on its long-term growth prospects, having opened a second office in Phoenix and hiring more employees there and at its Charlotte base. Management said it expects “strong top-line and strong bottom-line growth” to return in 2024.
All in, Townsquare grew digital revenue 8% year over year as digital surged to 54% of total net revenue. Tilting more toward digital could help Townsquare, when compared to its peers, better weather what some have called an advertising recession. Total revenues grew 2.9% to $103.1 million during the three months ending March 31, marking a new first quarter record for the company.
‘Better Situated’ For A Downturn
Another competitive advantage behind Townsquare’s digital ad success, according to Wilson, is the company’s focus on markets outside the top 50. “We face significantly less competition from large media players, digital marketing solutions players, and digital programmatic providers.”
Digital advertising historically outperforms other forms of advertising during an economic downturn, Wilson told analysts Wednesday. After the COVID lockdowns of 2020 caused advertising to tank, Townsquare’s digital ad revenue rebounded quickly, returning to growth by the fourth quarter of 2020, he said. On a wider scale, digital advertising across the U.S. increased 14.3% year-over-year in 2020, according to S&P Global Market Intelligence, while all other forms of traditional advertising declined. Wilson contends that Townsquare’s digital platform “sets us apart from our local media peers,” making it “better situated than our competitive set during a downturn.”
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