What Is Quarterly Revenue Growth?
Quarterly revenue growth is an increase in a company’s sales in one quarter compared to sales of a different quarter.
The current quarter’s sales figure can be compared on a year-over-year basis (e.g., 3Q sales of Year 1 compared with 3Q sales of Year 2) or sequentially (3Q sales of Year 1 compared with 4Q sales of Year 1). This offers analysts, investors, and other stakeholders insight into how much a company’s sales are increasing over time.
Key Takeaways
- Quarterly revenue growth measures the increase in a firm’s sales from one quarter to another.
- Analysts can review the sales of successive quarterly periods or the quarter of one year compared to the same quarter of another year.
- For an accurate picture of growth, investors should look at the growth over several quarters and how consistent it is.
- Poor growth for one or a few quarters does not necessarily indicate a bad investment or a poorly performing company.
Understanding Quarterly Revenue Growth
When examining a company’s quarterly or annual financials, it’s insufficient to only consider the revenue for the current period. Investors seek to observe growth and improvement over time. Comparing a company’s financials from one period to another reveals its revenue growth rate and assists investors in identifying the catalyst for such growth.
Example
Consider XYZ Corp., which generated $66.2 billion in revenue for the second three months of the year (April to June), compared to $58.7 billion for the first three months (January to March). This indicates a quarterly revenue growth of 12.78%.
Consistently maintaining this growth rate would signal a strong potential investment. Examining quarterly growth rates over multiple years can provide more comprehensive insight than merely a six- or twelve-month period.
Limitations of Quarterly Revenue Growth
Investors should be aware of the limitations of placing too much emphasis on quarterly revenue growth. The time between quarters is brief, and a company’s results can rapidly change due to business cycles, economic shocks, management shifts, or other internal disruptions to supply chain or operations.
While robust quarterly revenue growth is a key success metric, it’s imperative to observe the growth over several quarters to gauge consistency. Limited growth across two or three quarters may not signify a sustainable long-term investment.
On the contrary, investors should not panic if a company shows poor quarterly revenue growth once or twice. Seasonal businesses, such as tourist companies, may experience stagnant growth in certain periods and significant spikes in others. Observing long-term patterns is vital to understand a company’s trajectory and decide on a potential buy, sell, hold, or short.
Some investors express concerns that quarterly reporting cycles place excessive emphasis on short-term results over long-term sustainable progress.
Can Quarterly Revenue Growth Be Negative?
Yes, if a company generates less revenue quarter-over-quarter, it indicates negative growth. This doesn’t necessarily imply the company is losing money; it merely means the subsequent quarter saw fewer sales than the previous one.
Why Do Investors Care About Quarterly Revenue Growth?
Investors expect companies to demonstrate continual growth, and quarterly revenue trends are a means to verify this progression. Additionally, revenue growth projections inform managers and investors for future decision-making.
What Is QoQ vs. YoY?
- QoQ stands for quarter-over-quarter, measuring how metrics like revenues change from one quarter to the next.
- YoY stands for year-over-year, comparing changes from 12 months ago until the present.
Related Terms: annual revenue growth, sales increase, financial quarters.
