September 2023
Article
5 minutes
Perspectives on Progress #6
Claire Shaw – Investment Specialist Director
Ben James – Portfolio Director
- Climeworks is set to benefit from the US Department of Energy’s up to $1.2bn investment in direct air capture projects.
- Beauty and wellness company ODDITY successfully IPO’d in July 2023.
- Operational updates from MercadoLibre, Delivery Hero and Pinduoduo suggest they are well-placed to capitalise on the significant opportunities ahead of them.
As with any investment, your capital is at risk.
Climeworks
Removing CO2 from America’s atmosphere
The Swiss company is spearheading global initiatives for carbon dioxide removal via direct air capture (DAC). It recently received a ‘Notification of Selection’ from the US Department of Energy as one of the companies set to benefit from an up to $1.2bn investment into this emerging technology. Worsening climate change and inadequate efforts to cut emissions have thrust carbon removal into the spotlight. UN scientists estimate that billions of tons of carbon must be sucked out of the atmosphere annually to meet global warming targets. As part of Biden’s Bipartisan Infrastructure Law, this investment will fund America’s first two DAC hubs – one in Texas and one in Louisiana. Each project will capture an estimated one million metric tons or more of carbon dioxide per year initially. Climeworks’ technology will be deployed in Project Cypress in Louisiana. This project is expected to create approximately 2,300 jobs in the area and has set a goal of 10 per cent of the overall workforce coming from the fossil fuel industry.
Since its founding in 2009 by engineers Christoph Gebald and Jan Wurzbacjer, Climeworks has established the world’s first, and to date only, commercial DAC facility – Orca – which operates in Iceland. The company already boasts a wealth of multinationals among its customer base, including Microsoft, UBS and Shopify.
While DAC is still an industry in its early days, US Energy Secretary Jennifer Granholm said, “If we deploy this at scale, this technology can help us make serious headways towards our net zero emissions goals.”
To learn more about Climeworks and its mission to limit global warming, check out our short film which you can find here.
ODDITY
A makeover for the IPO scene
The Scottish Mortgage portfolio saw its first IPO in 18 months in July when private holding ODDITY went public on the NASDAQ. ODDITY’s successful listing bucks last year’s trend, which saw only a few IPOs across the entire market, suggesting that some positive sentiment is returning to the US economy.
ODDITY is using technology to transform the beauty industry. Its expanding proprietary data set and machine learning enable it to deliver high-quality, science-backed products and accurate recommendations. For example, one of ODDITY’s brands is the makeup line IL MAKIAGE. It uses a combination of AI-powered quizzes and the camera on your smartphone to successfully select the ideal foundation match for any skin type.
Unsurprisingly, 40 per cent of ODDITY’s staff are technologists.
We invested when ODDITY was still private after the founders selectively approached us as potential long-term shareholders to assist its growth. ODDITY’s profitable growth is rare for a direct-to-consumer company, and we look forward to it iteratively launching more brands with equally enormous sales potential over the coming years.
MercadoLibre
$10bn in gross merchandise volume achieved
MercadoLibre, the largest ecommerce and fintech ecosystem in Latin America, continues to deliver impressive fundamental growth and has surpassed $10 billion in quarterly gross merchandise volume (GMV) for the first time in the company’s history. Chief executive, Marcos Galperin, commented that the consumer in Latin America has rebounded heavily after the pandemic and its leadership position in the region has been going from “strength to strength”.
Growth in markets such as Brazil and Mexico stand out, and this is despite intense competition across the continent. MercadoLibre's first-mover advantage, expansive logistics network and the stickiness of its fintech ecosystem have also prevented foreign challengers like Amazon and Sea Limited's Shopee from gaining a meaningful foothold in Latin America.
At a time when other ecommerce giants around the globe are shedding staff, MercadoLibre continues investing in its business by adding headcount to build out an even more robust logistics network to provide faster and cheaper deliveries across the region to its consumers.
Delivery Hero
Delivering cause for optimism
The last few years have been challenging for the food delivery company Delivery Hero. While it benefited significantly during the Covid-19 lockdowns of 2020 and 2021, its share price fell sharply in 2022 as economies reopened, and inflation and interest rate concerns weighed heavily on growth companies in general. This led to the company forecasting slowing growth in the short term.
Despite the adverse market reaction in 2022, chief executive, Niklas Östberg, committed to the companyʼs long-term investment plan. Positive signals are starting to come through in the numbers.
It recently achieved adjusted operating profits and forecasts stronger-than-expected revenue growth for the rest of 2023.
As the largest food delivery network outside of China, Östbergʼs long-term committed approach is rare, and the opportunity for Delivery Hero remains vast.
Pinduoduo
The rise of Temu
While scrolling through your Instagram stories recently, you may have seen Temu products pop up on your feed. You may not know, but Temu is run by Chinese ecommerce giant Pinduoduo (PDD), and its recent growth has been nothing short of explosive. Temu officially launched internationally in September 2022 and has gone from $3 million GMV to $400 million GMV a month by April 2023.
The Temu app has been topping the most downloaded free app charts globally this year as it has expanded across different countries and regions. PDD is spending aggressively as it expands beyond its core domestic Chinese customer. So much so that Meta management recently highlighted “Chinese advertisers reaching customers in other markets” to explain its stronger ad revenues. Through heavily discounted products, gamification and smart social marketing, Temuʼs price and selection are astonishing. We are excited to see how PDD continues to capitalise on the significant overseas opportunity in front of it.
Scottish Mortgage Annual Past Performance To 30 June each year (net %)
| 2019 | 2020 | 2021 | 2022 | 2023 |
| 0.7 | 55.4 | 62.8 | -46.1 | -6.3 |
Source: Morningstar, share price, total return, sterling
Past performance is not a guide to future returns.
The trust invests in overseas securities. Changes in the rates of exchange may also cause the value of your investment (and any income it may pay) to go down or up.
The trust invests in emerging markets where difficulties in dealing, settlement and custody could arise, resulting in a negative impact on the value of your investment.
The trust has a significant investment in private companies. The trust’s risk could be increased as these assets may be more difficult to sell, so changes in their prices may be greater.
About the author - Claire Shaw
Investment Specialist Director
Claire joined Baillie Gifford in 2019 as an investment specialist for the Scottish Mortgage Investment Trust. Prior to this since 2014, she was a portfolio manager of European Small and Mid Caps at SYZ Asset Management and previously spent six years at Franklin Templeton on the European Equities team. Claire holds a First Class MA (Honours) degree in Geography from the University of Aberdeen and a Masters (MSc) in Research from the University of Edinburgh.
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.
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