Here are four huge secular technology trends that could help Alibaba Group Holding Ltd (NYSE: BABA) (SEHK: 9988) grow its earnings in the next ten years. –
In the past decade, Alibaba Group Holding Ltd’s (NYSE: BABA) (SEHK: 9988) sales and earnings have increased as the company has astutely ridden the secular trend of the development of China’s e-commerce market.
As a result of riding the mega-trend and good management execution, Alibaba’s market capitalisation and stock price have both soared.
The development of China’s e-commerce market will undoubtedly continue in the next decade.
However, Alibaba management has smartly positioned the company to benefit from other trends that could help power earnings growth for the company in the next decade. Here are four of them.
1. Development in batteries
Although Alibaba isn’t a battery play like BYD Co Ltd (SEHK: 1211) or Tesla Inc (NASDAQ: TSLA), it might as well be given how much Alibaba could benefit from battery development.
If batteries improve, drone delivery will be more practical because drones could travel for longer, carry heavier items, and be cheaper to deploy.
Once drone delivery is practical, Alibaba and the logistics companies that work with Alibaba could deliver products much faster.
If Alibaba delivers products faster, demand for Taobao and Tmall products, as well as Ele.me, could increase.
In that scenario, Alibaba would likely benefit from more ad sales from Taobao and Tmall and more revenue from Ele.me.
2. AI logistics technology
Although being asset-light has its advantages, Alibaba has increasingly invested in its own logistics operations, directly and indirectly, to better compete against JD.com Inc (NASDAQ: JD) (SEHK: 9999) and Meituan Dianping (SEHK: 3690).
Given that AI and big data have the potential to improve logistics efficiency substantially, improvements in those two technologies could save Alibaba a lot of money and make the company more competitive.
3. Autonomous driving
Autonomous driving will be a trillion-dollar market in the future and Alibaba could stand to benefit through its mapping info super-app AMAP, which could allow for users to potentially hail autonomous taxis in the future.
Alibaba could also benefit from autonomous driving in that the technology could improve logistics efficiency.
4. Cloud tech development
Improvements in cloud technology will make Alibaba’s cloud more valuable both to its cloud customers and Alibaba itself.
With improvements in cloud processing speeds, for example, Alibaba can price cloud processing resources for less and offer more value to its customers. With more product value generally comes more demand.
Although it won’t make as much per processing resource, most analysts expect the corresponding increase in demand to more than offset the decrease in revenue per computing resource in terms of the next decade.
Given that it also uses Alibaba Cloud for many of its infrastructure needs, Alibaba will benefit with lower costs.
In the next decade, Alibaba will also benefit from the emergence of cloud technologies made possible by 5G such as cloud gaming, where much of the processing for a game is done in the cloud rather than on a gaming console.
Foolish bottom line
Although it’s already a huge company, Alibaba has a lot of growth potential left.
In addition to the continued development of China’s e-commerce sector, Alibaba benefits from a number of tech development trends.
These include areas such as battery improvements, AI, big data, autonomous driving, and cloud tech development, all of which could help increase efficiency and earnings over the next ten years.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Jay Yao doesn’t own shares in any companies mentioned.
The Motley Fool Hong Kong Limited(www.fool.hk) 2020