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Apple Earnings: What to Watch? Certainly Not Apple TV Plus

Fresh off a weekend of Netflix-binging and gobbling up one of Game of Thrones’ biggest battles ever, it’s no doubt that many TV fans are wondering where they’d be without streaming video—and in that way, Apple is just like us.

With no over-the-top video service to call its own (yet), the company will reveal on Tuesday, April 30 one of its last quarterly earnings without any amped up revenue from services. A season finale of sorts, the earnings will be a cliff-hanger for Apple stock watchers, because the results will show what life will be like for the iPhone-maker if it can’t pull off a pivot to video with its forthcoming Apple TV Plus service.

The problem for Apple, as analysts and experts have long said, is that the iPhone is not enough. And after Apple’s previous quarterly earnings in January, the general consensus was that the sun was setting on the iPhone era—or at least on the device’s ability to keep the company afloat like an airship. In fact, storm clouds began materializing on Jan. 2, when Apple CEO Tim Cook warned investors that its sales would be lower than expected, due to softness (no doubt exacerbated by the trade war) in the Chinese market.

Cook’s bad news came amid an Apple stock selloff from its all-time high of $233 in Oct. 2018, and on its own caused shares to drop 10% to $141. Apple clawed back that loss over the next two months, even as iPhone sales tanked, because word trickled out about an array of new services in the company’s product pipeline.

Then finally, in late March, the company announced Apple TV Plus, an original premium video offering; Apple News Plus, an-all-you-can-read magazine bundle; and Apple Arcade, a subscription video gaming service. But lacking in details like price and launch date for the two more ambitious projects (Apple TV Plus and Apple Arcade), the announcement raised more questions than it provided answers, as an immediate stock drop revealed.

For Apple, reigniting growth is paramount, and the steady revenue generated by services is its best path forward. In Q1 2019, Apple boosted its services revenue by $1.8 billion year-over-year, hauling in $10.9 billion total and showing it may have the chops to make this push work. Tuesday’s numbers—largely absent any lift from the products announced in March—will likely show similar trajectory, but little more.

Instead, the earnings report will be like a visit from the ghost of Christmas future, warning Apple what will happen if it doesn’t change its hardware-dependent ways. Much needed iMac and iPad updates put out in March will likely spur upgrades in the desktop and handheld segments. And though there was no new iPhone models, analysts expect iPhone sales to be better this quarter. Morgan Stanley’s Katy Huberty recently noted that Apple had increased its smartphone share in China for its third consecutive month in March, its largest year-over-year increase in the last 15 months.

As important as iPhone is, its Apple’s services—which, in addition to the forthcoming television and gaming products, includes everything from App Store sales to AppleCare purchases to iCloud subscriptions—that will drive the company’s future growth. That because it’s a game Apple can largely control. “We can’t change macroeconomic conditions,” wrote Cook in that Jan. 2 investors letter, “but we are undertaking and accelerating other initiatives to improve our results.”

To that end, Apple has already pushed out Apple News Plus, perhaps before it was ready, to start generating revenue. It also may be spending up to a half billion dollars on titles for Apple Arcade, reports the Financial Times. And then, of course, there’s the Oprah factor, reeling in almost every big name in Tinseltown to make Apple TV Plus more than just another streaming service.

Will Apple’s amped-up services push be enough? Time will tell, yet. Until then, sit back and ponder what life will be like without them, because that’s likely to be the most informative takeaway from Apple’s next earnings report.