When the market closes today, many tech investors will be tuning into Apple (AAPL -1.22%) earnings. While the financial results will certainly be important, investors will likely glean the most value from the conference call following the release. Here are four important questions analysts will likely ask Apple CEO Tim Cook.
1. Are new product categories still on schedule for a 2014 launch?
Cook has promised investors new product categories in 2014 on several occasions. Any comments from Cook on this topic could likely be the most important words spoken in the entire call.
What new categories could Cook be referring to in his vague promises of "new categories?" If the rumor mill is correct, one of Apple's new products will be the iWatch -- a smartwatch that would mark Apple's first move into wearables.
Beyond whether or not the product launches are still on track, it would also be helpful to know exactly how many new product categories Apple plans to enter in 2014.
2. How does Apple feel about smartphones with larger displays?
Thanks to documents that surfaced recently during an Apple-Samsung trial, we know Apple has been discussing internally the adoption of smartphones with larger displays. In fact, one of the documents to surface during the trial was a slide titled, "Consumers want what we don't have," showing the 91 million smartphone units of 2013's 228 million units of incremental sales growth that came from phones with displays larger than four inches.
Source: MacRumors renderings, by Ferry Passchier, of the alleged 4.7-inch and 5.7-inch sixth generation iPhone lineup. Photo used with permission.
An update from Cook on Apple's thoughts on this market could more or less confirm whether or not Apple is planning on launching a smartphone with a larger display. But considering how guarded Apple is about sharing details of future product plans, investors shouldn't expect much of an answer.
3. What kind of growth can investors expect from new categories?
Any vague notion of Apple's expectations for its new product categories would be incredibly useful for investors. With the stock trading at just 13 times earnings, very little bottom-line growth, if any, is priced into Apple stock today. If management is bullish about its new categories, the stock could be undervalued.
4. Is there room for further gross profit margin improvement?
Though this question may be the most boring of the four, it's the one that Cook, or the CFO, would be most likely to answer, because it doesn't have anything to do with Apple's future product plans.
With Apple's gross profit margin still trending significantly lower than it was several years ago, it would be helpful to know how management feels about Apple's current levels of profitability. While recent trends suggest Apple's narrowing gross profit margin has bottomed, it's not yet certain that Apple couldn't make upward progress in the important metric again. In fact, analysts are estimating a year-over-year gain in Apple's gross profit margin in Q2 for the first time in a long time.
Data Source: Data for chart above was retrieved from Apple SEC filings for quarters shown. Asterisk indicates consensus analyst estimate.
Is Apple's optimistic gross profit margin story set to continue? Let us know, Cook.
The financial results themselves will likely be boring. In fact I won't be surprised if I find myself yawning the minute they're released. Apple's new method of reporting guidance is proving to be incredibly accurate -- so a surprise is unlikely. It's the answers to these questions -- if they're asked -- that could make or break Apple's earnings report.
