DLO: 3x Is Very Possible in 3-5 Years

Portfolio Company

Hi all 👋

Company Name: DLocal

Ticker: DLO

Market Cap: $3.24B

Headquarters: Montevideo, Uruguay

Shares Outstanding: 285.5M

CEO: Pedro Arnt

Revenue Growth: 17.5%

Net Income Magin: 21.5%

P/E: 18.1x

P/S: 3.2x

EV/EBITDA: 10.4x

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Outline

1. Introduction

2. Numbers

3. Opportunities

4. Risks

5. Valuation

6. Technicals

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Introduction

DLO is fintech specializing in cross-border payment solutions for merchants in emerging markets - namely LatAm, Asia, Africa, and the Middle East. The DLO platform makes it easier for global merchants (NFLX, AMZN, META, BKNG etc) to accept payments locally. They started their journey in LatAm but now operate in 40+ countries across LatAm, Africa, and Asia.

I first invested in DLO a while back before the drop off in June 2024 which was frustrating timing, but at the time DLO was not a big position so from a portfolio wide stance it didn’t matter too much. I’ve been a bit more vocal about DLO over the last month (especially to my paid subs who know my exact buy times) because I think DLO below $13 is a complete steal if you’ve got an outlook for 3+ years.

Since 2021, DLO is down ~84% on a series of macro and company issues. The stock never really should have been at $72 in the first place, and to be honest my PT isn’t even that high for the time being. The stock got destroyed on a fraudulent short report, emerging market currency devaluation (we’ve had the same with NU), decreasing margins and take rates, and a CEO change (actually great news). However, we’re now getting to a time with growth acceleration, margin stability, and a load of opportunities ahead which I’ll jump into.

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Numbers

DLO last reported earnings on 14th May 2025 and they next report on 13th August 2025. Here’s a look through the financials of DLO and the trends we’ve seen over the last 2-3 years:

Demand 📈

• TPV: $8.1B - 53% YoY (72% on a constant currency basis)✅

• NRR: 144%

• Revenue: $216.8M - 18% YoY (36% on a constant currency basis)✅

• 75% of revenue comes from LatAm whilst 25% comes from Africa and Asia.

Profitability: 💵

• Profitability has trended down over recent years, but we’re starting to see some stability here.

• Net income margins hit 21.5% (9.60% 12 months ago) and gross profit margins hit 39%.

• FCF margins hit 45.5% in Q1.

Health:✅

• The balance sheet is solid with $660M in cash and no debt.

• They’re also in the middle of a $200M share buyback program.

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Opportunities

TAM

DLO’s TAM is ~$2T as per management growing in the region of 17-18% CAGR through to 2030 so we could be looking at a TAM in 2030 of $4.3T. This means we’re looking at only 1.6% of the TAM today and just 0.7% of the 2030 opportunity. This shows just how early we are and how large the opportunity is ahead for DLO with the right execution.

This evidences that DLO is operating in a very fragmented market along with peers such as EBANX, PagSeguro, Mercado Pago, Xendit, Razorpay etc. However, if you look at developed markets like the US and UK, you’ve got a few companies that control the vast majority of the TPV. The fragmentation in the emerging markets is because of:

1. Lack of any standardized infrastructure meaning payment systems are built locally (Brazil has Pix, Kenya has M-Pesa).

2. Digitilization in emerging markets is still rare meaning people rely on payment methods like cash, local bank transfers, and others. Adapting to different payment methods becomes necessary and that’s why there’s so many different payment companies taking up a tiny market share.

3. Regulatory frameworks are not aligned at all. There are tons of different legal compliance on a national, or even regional basis.

I won’t go into the numbers too much, nor are these going to be too complex, but PYPL in the developed market regions has a TPV ~$1.7T which translates into at least a 40% share of digital payments. If DLO can at some point reach a 10% share in the emerging market region, we’re looking at TPV potential of $400-500B. This is somewhat unlikely in the short term but over time emerging markets will become considerably less fragmented and more opportunities will open up for DLO.

With DLO being one of the strongest, most financially health, and most profitable payment processors in the region, they will be the one that continues to survive as smaller firms get acquired or slowly die out. Consolidation is coming and DLO will be a beneficiary of this.

Emerging Markets Growth

I want to expose myself to the emerging markets and DLO is one of the best stocks in this region. The regions that DLO caters to (Africa, LatAm, Middle East, Asia) has a combined population above 2B, and the vast majority of them are still in the very early stages of digital adoption. I don’t want to focus this article on the emerging markets theme, but here’s just a few bullet points to summarize it:

• Cash is still the main form of payment in over 50% of the emerging markets that DLO operates in.

• Africa and Asia are the highest growth areas today.

• Cross-border payments market is expected to reach $65T in 2032.

If you want to check out a bit more depth into emerging markets, then check out my GRAB investment thesis linked here. I’ve got more detail on the general growth of emerging markets.

This "Superapp" Trades At 28% Cash In An Emerging Market

Geographic

DLO already operates in 40+ countries, but the geographic expansion runway is still very significant. Africa has 1.4 billion people, yet contributes (combined with Asia) to only 25% of DLO’s TPV, so we can estimate that Africa TPV as a % of total TPV is likely less than 12.5%. Africa is a country where companies like JMIA are growing rapidly along with the mobile money trend so that is a huge opportunity for DLO to continue winning. Asia is similar to Africa in that the there’s very active markets with more and more digital wallets, yet it only makes up ~10% of DLO’s revenue. If you combine the growth opportunities ahead for DLO in Africa and Asia, it’s very compelling to suggest that DLO are nowhere near hitting maturity.

The other opportunity for DLO is in India, though this is a lot more complex. India have a Unified Payments Interface (UPI) which is essentially their own mobile bank transfer system with ~11 billion transactions per month so the volume of digital payments is huge. One of the reasons it’s so widely used is because it’s free to use meaning there’s no inter transfer revenue. When you combine this with the very tight regulations in terms of data and licenses, it becomes a very tough market to crack. Further, when you combine that with the fact that Razorpay and Google Pay are the main competitors here, you start to realize that it’s a geography with a lot of investment required to try compete.

This isn’t so bad though because the monetization potential in India is pretty slim anyway and many describe it as a “zero margin” geography.

Outside of the above geographies, DLO has still lots of room to run in LatAm (Mexico, Argentina, Colombia, Peru, Chile) and the Middle East (Egypt, UAE, Saudi Arabia).

Flywheel

Like all successful companies, DLO has a very good flywheel effect. Here’s the CEO:

“The comprehensiveness of our One DLocal solution allows our merchants to add new markets and payment methods at a marginal incremental implementation cost, providing cost-effective and speedy geographic go-to-market strategies” - Pedro Arnt

Effectively, DLO:

• Signs a new client in a new geography

• Expands into a new country

• Any existing merchant addition in the new country comes at very low incremental cost. This means more margin, and more volume at limited cost.

• Improved unit economics.

• Stronger moat.

Looking at take rates, you may think the above is not happening successfully as rates have come down from +4% to below 3% today. This is not inherently negative though as long as we are seeing rising volume and more growth which we are, though of course margins have been pressured slightly.

This margin pressure has come from a macro wide decrease in take rates, larger client acquisitions, investments in new technology, and a few one-time charges. Management’s commentary has hinted that they believe margin difficulties are behind them now, and the numbers back this up over the last 3-4 quarters.

Net margins 12 months ago were 9.6% but Q1 25 reported 21.5% margins, and generally we are seeing graphs level/bottom out. I think we could be getting to a stage where we see the flywheel effect come into play. I’ll dive into the numbers later with you in the Valuation section, but even if we see limited margin expansion from today (which is very unlikely) we’re still looking at a very undervalued company.

Product Offering

DLO is an innovative giant. We just haven’t seen the full benefits yet, and neither has the market but their attempting to add ~4-5 new products over the coming years. Based on management commentary and partnerships we’ve seen I believe here’s what’s coming:

1. Pay-out via stablecoins. We saw this with their partnership with BVNK to enable stablecoin-based cross border payouts. Stablecoins are likely to be a very big piece of the DLO business, as they are with companies like COIN and PYPL too.

2. Defense suite: Enhanced risk and fraud management tools.

3. Orchestration: This will make them directly compete with Checkout.com and Adyen, but their knowledge of the emerging markets gives them a big advantage here.

4. Tax and compliance tooling: This may include automatic VAT, regulatory reporting APIs, and KYC onboarding for example.

5. Recurring billing.

DLO are becoming far more than a payment processor. They’re looking to dominate the entire pay-in, pay-out, risk, treasury, orchestration, compliance, and FX market in the emerging markets. The TAM ahead to win is pretty infinite.

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Risks

1. DLO’s current merchants are very heavily focused on their top 10 biggest customers. There’s not too much diversity so the risk of losing one or two customers may have a material impact on the overall numbers. This also gives DLO a bit less pricing power because they can’t afford to lose merchants so this risk has an indirect impact on take rates heading further down.

2. The other obvious risk is FX. Just like we’ve seen with NU over the last year, currency depreciation for the Brazilian Real had a significant impact on the stock price. DLO obviously use hedging strategies to counteract this risk, but the risks of operating in emerging markets is real.

3. Personally, I’m not too worried about the competition from other local players, but I am concerned about global giants like PYPL, Stripe, and Adyen expanding into emerging markets and further pressuring DLO’s margins and take rates which we have only just started to see stabilize. However, one of the most difficult parts of operating in emerging markets is the fragmentation. Each country has very different regulations but DLO has already built One Dlocal which enables merchants to expand into different geographies through a single API. This gives them a huge advantage over the big players like PYPL in the emerging markets.

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Valuation

Peer Comparison

Peer valuation isn’t easy for DLO because a lot of the peers are privately owned. However, we can do our best:

Here’s what I’ll look at:

• ADYEN (public)

• PAYO (public)

• RELY (public)

• EBANX (private)

• STRIPE (private)

• Checkout.com (private)

Public:

DLO is the only company here focused fully on the emerging markets. It also has the largest TAM ahead to win in my opinion (definitely compared to ADYEN and RELY, with PAYO it’d be fairly close). Anyway, looking at the numbers here:

ADYEN is probably the strongest in terms of revenue growth and margins, though DLO’s revenue on a FX neutral basis would be the best at 36% (even better than RELY). DLO also has far more TAM left to win compared to ADYEN. You can see DLO at ADYEN have a strong margin business, whilst PAYO and RELY have pretty weak margin businesses. RELY’s margins aren’t really growing much at all. It’s mainly because the remittance business is a pretty weak business with low differentiation, and little pricing power. So in terms of business strength, DLO is far stronger than PAYO and RELY, and similar to ADYEN but just on a smaller basis and not in the emerging markets.

Therefore, for DLO to be trading at only a small premium (in terms of sales multiples) to PAYO and RELY is a good sign it’s undervalued. In terms of EBITDA, DLO trades below RELY, a business with razor thin margins, and at just a third of ADYEN.

Ignore P/FCF for now as it doesn’t work well with DLO’s lumpy free cash flow currently though this is the best way to value DLO over the next 5 years.

Given the growth rates, margins, and TAM ahead, DLO should be trading at 10x sales at least (that’s still only half of the growth rates). Given they’re an emerging markets company though they shouldn’t be at such a premium and therefore given a 40% discount to that, a 6x sales multiple is very feasible.

Also note that before March 2024, DLO was trading at +6x multiples for the entirety of its time post IPO.

Private:

The 3 private companies we’re looking at are:

1. EBANX - Valued at $1.1B in 2021.

2. Checkout.com - Valued at $9.35B in 2023 but has grown incredibly so I think a +$12B valuation is fair to assume today.

3. Stripe - Valued at $95B in 2025 post tender offer in February.

Stripe and Checkout.com are much more global, whilst DLO and EBANX are emerging markets focused.

Finding exact numbers isn’t easy because these companies are private but even ballpark figures show you just how undervalued DLO is.

• Stripe is generating just over $5B in revenue growing at ~20% per year so if we assume Stripe hits $6B in FY25, they’re currently valued at just under 16x NTM sales (remember DLO is at 3.2x). Stripe are international though so deserve a premium over DLO which carries more risk.

• Generated $1B in revenue so trades at ~11x NTM sales.

• EBANX generated $360M in revenue so they trade more in line with DLO.

Looking at EBITDA numbers is difficult and there’s limited information on margins so sales multiples are the best ways to look at these private companies. So we can see that relative to Stripe and Checkout.com, DLO are trading at a huge discount.

They’re trading in line with EBANX who were valued last in 2021, only offer pay-in only (DLO do pay-in and pay-out) and have barely touched the surface in Africa and Asia. DLO also are generating 2x the amount of revenue and ~10x the TPV so for them to be trading at fairly similar multiples is not too representative of DLO’s stronger business.

The next section (valuation model, assumptions, and technicals is for paid subs 👇