What is Quarterly Revenue Growth
Quarterly revenue growth is an increase in a company's sales when compared to a previous quarter's revenue performance. The current quarter's sales figure can be compared on a year-over-year basis or sequentially. This helps to give analysts, investors and additional stakeholders an idea of how much a company's sales are increasing over time.
BREAKING DOWN Quarterly Revenue Growth
When looking at a company's quarterly or annual financials, it is not enough to just look at the revenue for the current period. When investing in a company, an investor wants to see it grow or improve over time. Looking at the financials in comparison to a previous quarter will give a clear picture of its growth rate.
For example, Exxon Mobil generated $66.2 billion in revenue for the three months ended September 30, 2017, and $58.7 billion for the three months ended September 30, 2016. Therefore, the company saw quarterly revenue growth of 12.78%. Over time, if this rate continues, it will be an excellent investment. Zooming out and calculating quarterly growth rates for a multi-year period can provide even more insight than simply a six- or 12-month period.
Limitations of Quarterly Revenue Growth
There are certain limitations of focusing too much on quarterly revenue growth as an investor. For example, the time period between quarters is short; in any given multi-quarter period, the company’s results could change drastically with business cycles, economic shocks, management changes, or other internal disruptions to a company’s supply chain and/or operations. While strong quarterly revenue growth is one metric for success, it’s important to look at several quarters and the consistency in growth over time. If growth is simply a two- or three-quarter phenomena, it doesn't necessarily bode well for a longer-term investment.
On the flip side, investors should not be greatly concerned when a company sees poor quarterly revenue growth one or two times in a row. Companies that are seasonal, for example, such as tourist companies, might have stagnant quarterly revenue growth at certain parts of the year and large spikes at other times. Again, it’s important to zoom out and look for a pattern in either direction – growth or loss – to determine the direction in which a company is moving and if it might be a good potential buy, sell, hold, or short.
Some investors have even voiced their frustrations over the quarterly reporting cycle in general since they believe it places too much emphasis on short-term results over long-term, sustainable progress.