Key Takeaways
- Despite projecting revenue growth north of 20%, DLocal trades at a forward P/E multiple only slightly above the much slower growing PayPal, suggesting the market is pricing in significant jurisdictional and currency risks.
- DLocal’s strategic focus on complex emerging markets provides a structural growth tailwind but exposes it to extreme foreign exchange volatility, particularly from currencies like the Argentine Peso.
- PayPal, in contrast, offers stability and strong free cash flow from mature markets but faces intense competition and a strategic imperative to find new growth vectors beyond simply expanding its user base.
- The investment decision hinges on an appetite for risk: DLocal represents a high-beta bet on growth execution in volatile environments, whereas PayPal is a lower-growth play on operational efficiency and margin defence.
In the fintech sector, valuation disparities often signal a deeper narrative about risk and growth. An observation recently highlighted by the analyst known as ‘thexcapitalist’ points to a particularly interesting case: DLocal (DLO), a company with one of the highest revenue growth forecasts among its peers, trades at a forward price to earnings ratio that seems incongruous with its prospects. When placed alongside a behemoth like PayPal (PYPL), whose growth has moderated significantly, DLocal’s valuation appears almost compressed, presenting what some see as an asymmetric opportunity for investors willing to look beyond headline multiples.
This dynamic warrants a closer examination. Is DLocal a genuinely undervalued growth engine being unfairly penalised for its operational theatre, or is the market correctly pricing in substantial, latent risks that are less apparent in mature fintech players? A comparative analysis reveals two fundamentally different investment theses, defined by a trade-off between explosive, albeit volatile, growth and predictable, if unexciting, stability.
The Valuation Conundrum
On the surface, the numbers present a compelling puzzle. DLocal is expected to deliver revenue growth that dwarfs PayPal’s, yet its valuation premium is surprisingly modest. To contextualise this, it is useful to compare them not only with each other but also with Adyen (ADYEN), another major player in the global payments space known for its high-quality enterprise client base.
| Metric | DLocal (DLO) | PayPal (PYPL) | Adyen (ADYEN.AS) |
|---|---|---|---|
| Forward P/E | ~18x | ~15x | ~38x |
| Est. Revenue Growth (FY2025) | 20% to 25%1 | 6% to 7%2 | 20% to 25%3 |
| Geographic Focus | Emerging Markets (LatAm, Africa, Asia) | Developed Markets (North America, Europe) | Global Enterprise (predominantly developed markets) |
The table illustrates the core issue. DLocal and Adyen have similar growth expectations, yet Adyen commands a forward P/E multiple more than double that of DLocal. PayPal is cheaper still, but its modest growth profile provides a clear rationale. The market is evidently applying a steep discount to DLocal’s earnings, which cannot be explained by its growth rate alone. The explanation must therefore lie in the perceived quality and sustainability of those earnings.
Deconstructing the Growth Narratives
DLocal’s High-Beta Emerging Market Play
DLocal’s entire business model is built on simplifying payments in notoriously complex regions. Its “one API” solution allows global merchants like Amazon and Microsoft to accept payments in dozens of emerging markets without needing to establish local entities or navigate byzantine financial regulations. This focus is both its greatest strength and its most significant vulnerability. The structural shift towards e-commerce and digital payments in Latin America, Africa, and Southeast Asia provides a powerful, long term tailwind.4
However, operating in these jurisdictions comes with unavoidable risks. The most prominent is foreign exchange volatility. A significant portion of DLocal’s revenue is exposed to currencies like the Argentine Peso (ARS) and Nigerian Naira (NGN), both of which have experienced severe devaluations. These fluctuations can dramatically impact reported revenues and margins in US dollar terms, creating earnings volatility that makes many institutional investors uneasy. Furthermore, regulatory and political risks are ever present, a point underscored by past scrutiny from short sellers regarding its disclosures and operational practices. Although the company has navigated these challenges to remain profitable, the market has a long memory for such risks.
PayPal’s Search for a Second Act
PayPal is the antithesis of DLocal. It is a mature, sprawling enterprise with deep penetration in developed markets. Its challenges are not of volatility but of saturation. With growth in its core markets slowing, the company is undergoing a strategic pivot under a new chief executive. The focus has shifted from chasing user growth at all costs to enhancing engagement and profitability among its existing, high value customers.5
While this strategy is sensible, it implicitly accepts a future of more moderate top line expansion. The company’s primary appeal now lies in its immense scale, brand recognition, and substantial free cash flow generation. For investors, PayPal represents a value and stability play within the fintech sector. The risk here is not a currency collapse but one of slow attrition, as nimbler competitors like Apple Pay and vertically integrated solutions like Adyen chip away at its market share and checkout dominance.
A Contrarian Hypothesis
The choice between DLocal and PayPal is less about which is “better” and more about an investor’s tolerance for specific types of risk. DLocal offers exposure to a potent structural growth story, but it requires accepting the wild card of emerging market macroeconomics. PayPal offers a defensive moat and cash generation but little in the way of exciting growth catalysts.
A speculative hypothesis is that the market’s discount on DLocal is slightly overdone. While the jurisdictional risks are real, they are also well known. The true test for DLocal is not whether it can grow—that seems highly likely—but whether it can demonstrate an ability to protect its margins through a full economic cycle in its key markets. If management can prove its hedging strategies and operational efficiencies are robust enough to smooth out the worst of the FX volatility over the next several quarters, a significant re-rating could follow. The asymmetric opportunity is not a simple mispricing; it is a calculated bet on management’s ability to tame the chaos inherent in its chosen markets. For that reason, its quarterly earnings reports, particularly the commentary on margins and currency impacts, have become the most critical data points for gauging its long term trajectory.
References
- Seeking Alpha. (2024). *DLocal: The Unstoppable, Yet Hidden, Emerging Markets Payment King*. Retrieved from https://seekingalpha.com/article/4799759-dlocal-the-unstoppable-yet-hidden-emerging-markets-payment-king
- CNBC. (2024). *PayPal PYPL Q1 2024 Earnings*. Retrieved from https://www.cnbc.com/2024/04/30/paypal-pypl-q1-earnings.html
- Adyen. (2024). *H2 2023 financial results*. Retrieved from Adyen’s investor relations website.
- Girolino, D. (2024). *DLocal Q2 2024 Earnings Review: Navigating Growth and Challenges in Emerging Markets*. Retrieved from https://www.girolino.com/dlocal-q2-2024-earnings-review-navigating-growth-and-challenges-in-emerging-markets/
- The Motley Fool. (2022). *Is PayPal Under-Valued?*. Retrieved from https://www.fool.com/investing/2022/06/28/paypal-undervalued-but-is-fintech-better-buy/
- Finviz. (2024). *DLO Stock Quote and Summary*. Retrieved from https://finviz.com/quote.ashx?t=DLO&ty=ea
- @thexcapitalist. (2024, September 24). [$DLO has the highest revenue growth expectation among mainstream fintechs…]. Retrieved from https://x.com/thexcapitalist/status/1938231953985044564
