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Apple Earnings: 3 Questions for Tim Cook

Daniel Sparks, The Motley Fool

Investors will be watching Apple (NASDAQ: AAPL) closely tomorrow when the company reports its fiscal third-quarter results after the market closes. Analysts are expecting the tech giant to return to revenue growth, following a 5% year-over-year decline in revenue in fiscal Q2. A moderation in the company's declining iPhone sales and more strong growth from Apple's services and wearables businesses are expected to help the company pull this off.

But investors will be interested in more than the quarter's financial performance. To get a better gauge of Apple's long-term prospects, investors should tune into the company's earnings call, where management often hones in on iPhone sales trends, wearables sales growth rates, and more. Here's an overview of three key questions Apple CEO Tim Cook may be asked during the call.

Apple CEO Tim Cook kicks off Apple’s March 2019 event.

Apple CEO Tim Cook. Image source: Apple.

Can iPhone return to growth?

On average, analysts expect Apple to return to top-line growth in fiscal Q3. But growth is expected to be only slight. The current consensus estimate calls for total revenue of $53.4 billion, up from $53.3 billion in the year-ago quarter. This is a reasonable forecast, given that Apple management guided for fiscal third-quarter revenue to be between $52.5 billion and $54.5 billion during the period.

Since the iPhone accounts for over half of Apple's revenue, management's guidance implies the company's declining iPhone business will likely see a smaller decline than the 17% revenue decline the important segment saw in fiscal Q2; Apple's fast-growing wearables and services business will likely be the segments that push the tech giant's year-over-year growth rate into positive territory -- if it happens.

Going forward, however, investors do want to see iPhone return to growth eventually -- even if it doesn't happen in fiscal Q3. Look for Cook to address whether he believes this is possible.

How rapidly are sales of wearables products increasing?

Investors will also want a glimpse into Apple's wearables, home, and accessories segment. The segment saw revenue rise 30% year over year in fiscal Q2. But during the company's second-quarter earnings call, management specifically said sales of its wearables products, or AirPods, Apple Watch, and Beats-branded products, increased nearly 50% year over year.

"This business is now about the size of a Fortune 200 company, an amazing statistic when you consider it's only been four years since we delivered the very first Apple Watch," Cook also said about the wearables business during the call.

Investors should look to see whether Apple maintained this sharp growth rate for sales of its wearables products in its fiscal third quarter.

How are Apple's new services looking?

Earlier this year, Apple announced four new services, including a news subscription service, a streaming-TV service, a credit card, and a subscription-based gaming service. While the premium news service launched shortly after it was unveiled, the other three services haven't yet launched.

Apple's new credit card is supposed to launch this summer while the company's gaming and TV subscriptions are scheduled for launches this fall.

Investors should look for an update on how Apple News+ is performing and on the planned timelines for the company's other three new services.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, and long January 2020 $150 calls on Apple. The Motley Fool has a disclosure policy.