Quarterly revenue growth definition

Quarterly revenue growth is an increase in revenue or sales of a company reported in a given quarter when compared to a different quarter. Investors typically compare metrics on a year-on-year (YoY) or a quarter-on-quarter (QoQ) basis.

Earnings metrics, like revenue, expenses, profit and loss, when looked at on a standalone basis do not give investors the entire picture of a company’s health. Investors need to see earning metrics compared between different periods.

How to evaluate companies using quarterly revenue growth measures? Learn more about quarterly revenue growth metrics.

What is quarterly revenue growth?

Quarterly revenue growth on a year-on-year basis helps investors analyse the performance of a company’s revenue or sales, while keeping seasonal cyclic business conditions in mind. For example, a company selling umbrellas will see higher revenue during the rainy season, thereby comparing umbrella sales for the rainy season on a year-on-year basis will give a more accurate picture of any changes.

Quarterly revenue growth on a quarter-on-quarter basis is a similar measuring technique but one that’s used to monitor shorter term changes. Comparing revenue on a quarter-on-quarter basis also allows investors to evaluate the progress made by a company in reaching its yearly benchmarks or goals declared during times of change, such as restructuring or mergers. 

It’s important to note that quarterly revenue or sales can fluctuate through the year. A dip in quarter-on-quarter revenue growth doesn’t necessarily mean that the company is going through a downturn. It’s important to analyse a company’s financial health over a longer timeframe.

Market analysts frequently publish their expectations for a company’s quarterly revenue growth and many publish forecast expectations for their earnings. Investors can compare a company’s reported revenue with analyst expectations and company forecasts.

Examples of quarterly revenue growth 

How to calculate quarterly revenue growth? Let us look at electric vehicle (EV) company Tesla’s (TSLA) latest quarterly earnings, as an example. 

For the fourth quarter of 2021, Tesla reported total revenues of $17.72bn. In the third quarter of 2021, the company posted total revenues of $13.76bn. On a quarter-on-quarter basis, Tesla reported quarterly revenue growth of $3.96 bn, or 28.8%.

To find quarterly revenue growth in percentage terms, find the difference between revenue of the two periods and then divide the difference with the revenue of the older period and multiply by 100. 

Zooming out and comparing Tesla’s latest quarterly revenue on a year-on-year basis shows that the company reported quarterly revenue growth of 65%, or $6.98bn. 

Tesla’s latest quarterly revenue growth beat analyst expectations. Refinitiv’s Institutional Brokers' Estimate System (IBES) expected Tesla’s fourth quarter revenue at $16.57bn compared to the reported $17.72bn. 

It’s important to note that revenue growth is one of the many metrics that investors use to evaluate whether a stock could be a profitable investment. Revenue growth remains an essential metric on an investor’s checklist when analysing a company but it has to be accompanied with healthy profit growth, sustainable debt levels, competent management and favourable macro environments and more.   

Limitations of quarterly revenue growth 

Focusing too much on quarterly revenue growth can lead to the shortsighted evaluation of a company, given the fact that a quarter lasts only three months. Investors must evaluate a company’s earnings over a longer time frame, as a company’s earnings can be influenced by many variables, such as business cycles, management changes, internal restructuring, black swan events or new technology.

A sudden jump in quarterly revenue could be due to a one-time event. Returning to the umbrella-selling company, let us assume that it operates in Tokyo, Japan, and it sees a 500% jump in its September quarter revenue due to an increased number of tourists in Japan for the Olympic games. The Olympics games that brought in an influx of new, foriegn customers for the company has to be considered as a one-time event.

Investors must also be mindful before jumping to conclusions when a company sees poor quarterly growth. For example, when the season changes to the dry summer season, the umbrella company will most likely see a drop in quarterly revenue. Many companies operate in cyclic sectors that go through phases of expansion, peak, contraction and trough.