Perspectives on Progress #5

Claire Shaw – Portfolio Director

Ben James – Portfolio Director

Key Points

Buy now, pay later specialist Affirm joins forces with Amazon to give shoppers more choice at checkouts
UPSIDE Foods becomes the first cultured meat company to gain regulatory approval to sell its products in the US
LVMH makes use of Epic Games’ Unreal Engine to give tech-savvy fashion shoppers new ways of experiencing its luxury goods

As with any investment, your capital is at risk.

Affirm and Amazon

A mutually beneficial ecosystem

Affirm has become the first ‘Buy now, pay later’ player to be offered by Amazon Pay, the service that lets shoppers buy goods at third-party stores using their Amazon account. Under the partnership, any US-based Amazon Pay merchant can let customers spread their payments over time by using Affirm’s Adaptive Checkout technology, which creates personalised plans.

This collaboration creates benefits for the two companies and, crucially, their customers. First and foremost, the partnership provides Amazon shoppers with more convenient, flexible payment options. Affirm lets consumers make purchases on Amazon and pay for them over time in fixed instalments, providing an alternative to traditional credit cards. For Affirm, teaming up with Amazon Pay unlocks a vast customer base and an extensive marketplace. The move expands Affirm’s reach and enhances its visibility among millions of potential customers, opening the door to increased sales and market penetration. Amazon’s reputation as a trusted ecommerce platform, combined with Affirm’s innovative approach to transparent financing, creates a compelling proposition. Customers gain confidence knowing they can rely on a reliable payment platform while enjoying the flexibility and affordability of Affirm’s instalment plans.

Commenting on the partnership, Libor Michalek, the president of Affirm, said: “Digital wallets are an increasingly critical part of the shopping experience and are expected to account for over half the ecommerce transactions worldwide by 2025.” By combining their strengths, we believe that Amazon and Affirm can create a mutually beneficial ecosystem that enriches millions of customers’ shopping experiences.

UPSIDE Foods

A new era in meat production

The cultivated meat company UPSIDE Foods has made history… again! In January’s edition of Perspectives On Progress, we celebrated the company receiving the world’s first 'No Questions' letter from the US Food and Drug Administration for cultivated meat, meaning the FDA assured that its products were safe to eat. That kept the company on track for the ultimate milestone: regulatory approval from both the FDA and the US Department of Agriculture. Well, that day has come, making UPSIDE Foods the world’s first cultivated meat company able to take its products to market.

The first stop is San Francisco’s Bar Crenn, where guests will soon enjoy UPSIDE’s chicken in a signature dish prepared by three-Michelin-star-chef Dominique Crenn.

UPSIDE Foods now turns its focus to scaling the production and distribution of its products. As ever, we are delighted to support the company as it continues to revolutionise the future of food.

To learn more about UPSIDE Foods and hear founder Uma Valeti describe his vision for this incredible company, check out our podcast, Invest in Progress.

Listen to the podcast here.

Epic Games

Digital fashion shows for LVMH

LVMH has announced a partnership with Epic Games which will enable new types of immersive digital experiences for the world’s biggest luxury conglomerate. LVMH will tap into Epic’s industry-leading 3D graphics creation tool Unreal Engine, using it to produce virtual fashion shows, fitting rooms and 360-degree product carousels.

LVMH’s move signals a shift to use Epic’s tools and services more widely. The fashion industry is one of many sectors grappling with how to present highly visual brands in digital environments. LVMH’s decision endorses our view that Unreal Engine can help companies engage with younger audiences more effectively, making it the ‘crown jewel’ of Epic’s products.

Carvana

Moving on

In the January edition of Perspectives on Progress, we addressed the challenges confronting the online used car dealer Carvana. Over the past six months, we have closely monitored its progress and engaged in discussions with its management. While Carvana holds significant growth potential, it remains hampered by its financial position. The firm has taken corrective measures, showing impressive progress in profitability. However, this has led to a slowdown in growth, creating a tug-of-war between profit and growth as the firm digests the substantial investments it made during a period of rapid sales expansion. While the company deals with this, its competitors are enhancing rival online platforms, potentially curtailing Carvana’s outlier returns. Despite our respect for the firm’s chief executive and the lucrative market opportunity, we have decided to sell our stake. To crystalise any loss is a hard decision to make, but we firmly believe it's in the best interest of our shareholders over the long term.

Housing Development Financial Corporation (HDFC)

Indian stalwart joins the world’s most valuable lenders

On 1 July, Indian mortgage lender HDFC merged with HDFC Bank, forming an entity with a market cap of approximately £140bn, surpassing HSBC, Bank of China and Morgan Stanley. The merger benefits the combined business’s 120 million customers by allowing it to cross-sell products and services, become more efficient and develop more sophisticated solutions thanks to the data it has to hand.

Scottish Mortgage has been an investor in HDFC since 2004. Since then, the firm has delivered more than a 40-fold total return. We expect even stronger financial characteristics from the merged entity. It gives the Trust exposure to India’s burgeoning middle class, rising income per capita and expanding financial services. This presents a considerable growth opportunity that is still in its early stages. However, it is not without risk, and we will monitor execution closely.

Scottish Mortgage Annual Past Performance To 30 June each year (net %)

	2020	2021	2022	2023	2024
	55.4	62.8	-46.1	-6.3	33.4

Source: Morningstar, Share price, total return, sterling.

Past performance is not a guide to future returns.

About the author - Claire Shaw

Portfolio Director

Claire Shaw is a portfolio director and plays a prominent role in servicing Scottish Mortgage’s UK shareholder base. Before joining in 2019, she spent over a decade as a fund manager with a focus on managing European equity portfolios for a global client base. With a background in analysing companies and communicating investment ideas, Claire is also responsible for creating engaging content that makes the Scottish Mortgage portfolio accessible to all its shareholders. Beyond that, she works closely with the managers, meeting with portfolio companies and conducting in-depth portfolio discussions with shareholders.

About the author - Ben James

Portfolio Director

Ben James is a portfolio director serving Scottish Mortgage’s shareholder base. Ben joined the Scottish Mortgage team in 2023 and has worked with Tom Slater as the US equity investment specialist at Baillie Gifford since 2015. A former soldier, he developed a passion for the power of investment to drive progress during his overseas deployments. Ben works closely with the managers, meeting with portfolio companies and conducting in-depth portfolio discussions with shareholders. Alongside this, he creates engaging content that makes the Scottish Mortgage portfolio accessible to all its shareholders.

Important information

This communication was produced and approved at the time stated and may not have been updated subsequently. It represents views held at the time of production and may not reflect current thinking.

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