What Is Quarterly Revenue Growth?
Let me explain quarterly revenue growth directly: it's the increase in a company's sales from one quarter compared to another. You can look at this on a year-over-year basis, like comparing third-quarter sales from year one to year two, or sequentially, such as third-quarter to fourth-quarter in the same year. This metric gives you, as an analyst, investor, or stakeholder, a clear sense of how the company's sales are trending upward 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 of several quarters and how consistent it is.
- Poor growth for one or a few quarters is not always indicative of a bad investment or poor performing company.
Understanding Quarterly Revenue Growth
When you're examining a company's quarterly or annual financials, don't just focus on the revenue for the current period. As an investor, you want to see growth or improvement over time. By comparing financials from one period to another, you get a straightforward view of the revenue growth rate, which can help you spot what’s driving that growth.
Example
Take XYZ Corp. as an example: they 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). That means the company experienced quarterly revenue growth of 12.78%. If this rate holds over time, it points to a solid investment. Expanding your view to calculate growth rates over multiple years gives you even deeper insights than just a short six- or 12-month snapshot.
Limitations of Quarterly Revenue Growth
As an investor, you need to be aware of the limitations when you put too much weight on quarterly revenue growth. The periods between quarters are brief, so in any stretch of quarters, results can swing wildly due to business cycles, economic shocks, management shifts, or disruptions in supply chains and operations.
Strong quarterly revenue growth is one sign of success, but you should check several quarters for consistent growth. If it's just a short-lived spike over two or three quarters, that doesn't promise much for long-term investing.
Conversely, don't panic over poor quarterly revenue growth for one or two periods in a row. Seasonal companies, like those in tourism, often see flat growth in off-seasons and big jumps in peak times. Always step back to spot patterns in growth or decline—this will tell you the company's overall direction and whether it's worth buying, selling, holding, or shorting.
Important Note
Some investors express frustration with the quarterly reporting cycle, arguing it overemphasizes short-term results at the expense of long-term, sustainable progress.
Can Quarterly Revenue Growth Be Negative?
Yes, if a company brings in less revenue quarter-over-quarter, it's recorded as negative growth. This doesn't automatically mean the company is losing money overall—just that sales dropped from the previous quarter.
Why Do Investors Care About Quarterly Revenue Growth?
You, as an investor, expect companies to grow steadily, so you track quarterly revenue trends to confirm that's occurring. Managers and investors also use future revenue growth projections to inform current investment decisions.
What Is QoQ vs. YoY?
QoQ means quarter over quarter, tracking changes in metrics like revenue from one quarter to the next. YoY means year over year, measuring changes from 12 months ago to now.
Other articles for you
The Diamonds ETF is an exchange-traded fund that tracks the Dow Jones Industrial Average by holding its 30 blue-chip stocks.
Internal controls are essential mechanisms for ensuring financial integrity, regulatory compliance, and fraud prevention in businesses.
The treasury stock method calculates additional shares from in-the-money options and warrants for diluted EPS by assuming proceeds repurchase shares.
The 2000 Investor Limit is an SEC rule requiring companies with over 2000 investors and $10 million in assets to file financial reports.
Income tax is a government-imposed levy on individuals' and businesses' earnings to fund public services, with variations in calculation and types across federal, state, and local levels.
A cash-out refinance lets you convert home equity into cash by replacing your existing mortgage with a larger one.
Voluntary conveyance is the elective transfer of real property title without adequate consideration, covering scenarios like avoiding default, fraud, charity, and gifting to descendants, unlike involuntary transfers without owner consent.
The text explores the millennial generation's characteristics, economic hurdles, work attitudes, and strategies for financial stability and retirement.
Petty cash is a small cash reserve businesses use for minor expenses to avoid the hassle of checks or cards.
The t-distribution is a statistical tool for estimating probabilities with small samples and unknown population standard deviations, featuring heavier tails than the normal distribution.