Townsquare Media (TSQ) Q3 2025: Digital Revenue Hits 55% as Remnant Ad Declines Cut Guidance
Townsquare’s digital-first pivot delivered record digital revenue share, but remnant ad weakness forced a guide down as AI-driven search changes hit indirect monetization. Strong expense discipline and margin management kept profits resilient despite significant high-margin revenue loss, and management eyes 2026 as a rebound year led by digital and political tailwinds.
Summary
- Digital Share Surges: Digital revenue reached 55% of total, more than doubling industry averages.
- Remnant Ad Collapse: AI-driven search traffic declines cut high-margin remnant ad revenue by half.
- 2026 Setup: Management expects digital and political cycles to drive a return to growth next year.
Performance Analysis
Townsquare Media’s Q3 met revenue and EBITDA guidance, but the composition of results exposes both the strength of its digital transformation and acute vulnerabilities in indirect monetization. Digital revenue now accounts for the majority of both total net revenue and segment profit, reaching 55% and 55% respectively for the first nine months. This shift is industry-leading, with management emphasizing that it is “more than two times the industry average.”
However, the quarter was defined by a sharp 50% year-over-year decline in remnant (indirect) digital ad revenue, which is tied to unsold inventory monetized through programmatic exchanges. The culprit is a structural drop in search referral traffic, a trend impacting all major web publishers as AI-powered search reduces traditional web visits. Remnant revenue, once $20 million annually at 90%+ margins, fell by $2.5 million in Q3 alone and will remain a drag into 2026. Excluding remnant, core digital ad revenue grew 5%, and owned and operated digital properties rose 10%.
- Digital Advertising Mix Shift: Programmatic and direct digital sales remain robust, but indirect remnant revenue is in structural decline.
- Interactive SaaS Margin Expansion: Townsquare Interactive (TSI) delivered 19% YTD profit growth, with margins expanding to 33% from 28% as AI and restructuring drove efficiency.
- Broadcast Margin Resilience: Broadcast radio revenue declined 8% ex-political, but profit margins improved to 28% as costs were tightly managed.
Despite top-line pressures, expense discipline and improved segment profitability in both digital and broadcast limited EBITDA erosion. Cash flow from operations remains strong and is being deployed for debt reduction and a 13% dividend yield.
Executive Commentary
"BY NOW, IT SHOULD BE VERY CLEAR THAT TOWNSQUARE HAS TRANSFORMED FROM A LEGACY BROADCAST COMPANY INTO A DIGITAL FIRST LOCAL MEDIA COMPANY AND THAT OUR DIGITAL PLATFORM AND DIGITAL EXECUTION SETS US APART FROM OTHERS IN LOCAL MEDIA."
Bill Wilson, CEO
"Town Square Ignite, our digital advertising segment, experienced slight revenue declines in the third quarter as accelerated weakness in remnant indirect digital advertising revenue offset continued growth in the direct sales of our programmatic offering and our owned and operated digital portfolio."
Stuart Rosenstein, CFO
Strategic Positioning
1. Digital-First Local Media Platform
Townsquare’s identity as a digital-first local media company is now fully realized, with digital comprising the majority of both revenue and profit. The company’s focus is on markets outside the top 50 U.S. cities, where its scale, first-party data, and proprietary demand-side platform (DSP, automated ad buying system) create a defensible niche. Management is clear that digital is the “growth engine,” and capital allocation is weighted heavily toward digital product, technology, and sales.
2. Programmatic and Partnership Model
The Ignite programmatic ad business, now 60% of digital ad revenue, continues to grow at a high single-digit rate. Townsquare acts as a full-service digital agency for local clients, leveraging its trading desk integrated with 15+ buying platforms. The third-party media partnership model, a “capital light” approach to expanding digital reach via other local media partners, generated $6 million in revenue this year at 20% margins and is expected to scale to $50 million over five years, broadening TAM (total addressable market).
3. Townsquare Interactive SaaS Margin Story
TSI, the subscription-based digital marketing SaaS business, saw profit margins climb to 33% as a result of AI-driven efficiency, a restructured customer service model, and a smaller but more productive sales team. While revenue is flat due to lower sales headcount, management expects growth to resume in 2026 as hiring ramps, with margins staying north of 30% even as scale returns.
4. Broadcast as Cash Cow, Not Growth Driver
Broadcast radio is managed for cash flow, not growth. Core revenue continues to decline (down 8% ex-political), but Townsquare is gaining local and national share relative to peers, and margins improved to 28% due to expense control and AI-enabled productivity. Broadcast supports the digital business by providing local reach and data, but is not a capital allocation priority.
5. AI and Industry Disruption
AI’s impact on search traffic is a structural industry challenge, not a Townsquare-specific issue. The company is proactively deploying AI internally for efficiency gains, but the external effect—reduced search-driven web visits—has sharply compressed high-margin remnant ad revenue. Management expects stabilization in remnant by late 2026.
Key Considerations
This quarter’s results underscore Townsquare’s successful digital evolution, but also spotlight the fragility of indirect digital monetization models in an AI-disrupted environment. Investors should weigh the following:
- Digital Revenue Dominance: Over half of revenue and profit now comes from digital, providing insulation from legacy media decline and positioning TSQ as a differentiated local media platform.
- Remnant Revenue Volatility: AI-driven changes to search traffic have exposed the risk of reliance on indirect programmatic monetization; recovery depends on industry-wide stabilization.
- Margin Management: Strong cost discipline and AI deployment have protected margins across segments, with Interactive’s profit margin expansion a standout.
- Capital Allocation Discipline: Cash flow is being used for debt reduction and sustaining a high-yield dividend, reflecting a commitment to shareholder returns despite near-term revenue headwinds.
- 2026 Growth Levers: The setup for 2026 is favorable, with expected stabilization in remnant ad revenue, a return to growth for TSI, and a robust political ad cycle.
Risks
The most acute risk is continued structural decline in remnant digital ad revenue, which is unlikely to recover until AI-induced search patterns stabilize. Political ad revenue is inherently cyclical and unpredictable, and broadcast radio faces secular decline. While management has demonstrated expense discipline, further cuts may be harder to achieve without impacting growth investments. Debt remains elevated, and higher rates could pressure cash flow despite recent rate cuts.
Forward Outlook
For Q4, Townsquare guided to:
- Net revenue of $105 million to $109 million
- Adjusted EBITDA of $21.5 million to $23.5 million
For full-year 2025, management lowered guidance:
- Net revenue of $426 million to $430 million
- Adjusted EBITDA of $88 million to $90 million
Management highlighted several factors that will shape results:
- Remnant digital ad revenue will remain a headwind through at least the first half of 2026
- Political revenue is expected to rebound strongly in 2026, with over $10 million anticipated
- TSI revenue growth will resume as sales hiring ramps, maintaining 30%+ margins
Takeaways
Townsquare’s digital transformation is real and measurable, but the limits of digital scale are exposed when external platforms (search engines) disrupt traffic flows. The company’s pivot to programmatic and SaaS models, coupled with robust cost management, provides resilience, but future growth will depend on stabilizing indirect revenue and reigniting SaaS sales velocity.
- Digital Outperformance: Digital now drives the majority of revenue and profit, validating the digital-first strategy and insulating TSQ from legacy media pressures.
- Remnant Drag is Structural: Indirect ad revenue collapse is an industry-wide phenomenon, and TSQ’s exposure is material but being managed through focus on direct and programmatic.
- 2026 as Inflection Year: Investors should watch for remnant stabilization, TSI sales ramp, and the impact of the political cycle as key catalysts for a return to growth.
Conclusion
Townsquare’s Q3 results highlight both the strength of its digital-first execution and the vulnerability of indirect monetization in a changing digital landscape. Margin discipline and cash flow remain strong, but the outlook hinges on navigating AI-driven disruption and reigniting digital growth levers in 2026.
Industry Read-Through
The sharp decline in remnant digital ad revenue at Townsquare is a warning for all publishers reliant on search-driven traffic and programmatic monetization. AI’s impact on consumer search behavior is reducing web inventory across the industry, compressing high-margin revenue streams. Companies with diversified digital models, direct sales, and SaaS components are better positioned, while those overexposed to indirect programmatic face margin risk. The emphasis on capital-light partnerships and SaaS margin expansion at TSQ is likely to be echoed by peers as the industry recalibrates to a post-search era.