Key Takeaways
- dLocal offers a high-growth but high-beta investment thesis, acting as a specialised payments gateway for emerging markets, a fundamentally different risk profile to global peers like Adyen.
- The company’s primary value is solving payment fragmentation in regions where dozens of local methods dominate, a complex task that commands a higher take-rate but also attracts scrutiny.
- While top-line growth remains robust, investors must monitor the compression of its take-rate and the immense impact of foreign exchange volatility, particularly from its significant exposure to Argentina and Nigeria.
- The comparison to Adyen is useful for framing but breaks down under scrutiny; dLocal is a play on depth within high-risk markets, whereas Adyen focuses on global breadth and a unified platform.
- Future valuation hinges on dLocal’s ability to diversify its geographic revenue base and prove its model is sustainable outside of hyperinflationary economies, mitigating its concentration risk in Latin America.
In the complex world of global payments, dLocal has been framed by some, including analyst TacticzH, as a “mini-Adyen” with a specific focus on emerging markets. This analogy is a compelling entry point, capturing the firm’s role in processing payments for global titans like Microsoft and Uber in notoriously difficult regions. However, a deeper analysis reveals a business model whose strengths and vulnerabilities are intrinsically tied to the economic and political volatility of the markets it serves, presenting a far more complex picture than that of a simple smaller peer.
The Emerging Market Payment Conundrum
To understand dLocal is to appreciate the problem it solves. Multinational corporations seeking growth in Latin America, Africa, and Southeast Asia face a bewilderingly fragmented payment landscape. Credit card penetration is often low, and consumers rely on a vast array of local methods: bank transfers, cash vouchers like OXXO in Mexico, or digital wallets and instant payment systems like Pix in Brazil. For a global merchant, integrating dozens of these unique payment methods across multiple countries is an operational nightmare fraught with regulatory and currency risks.
dLocal’s proposition, marketed as “One API, One Platform,” is to abstract this complexity away. It provides a single point of integration for merchants to accept payments from, and issue payments to, customers across its 40-plus markets. This service is not just a convenience; it is an essential enabler of commerce, allowing global firms to access consumers they otherwise could not reach. This unique and difficult-to-replicate function is the foundation of its business model and the justification for its historically high take-rates.
Deconstructing the Growth Engine
The company’s growth has been undeniably rapid, driven by a “land-and-expand” strategy of signing new merchants and increasing its share of their total payment volume (TPV). While five-year historical growth figures are impressive, a look at recent performance provides a more timely view of its operational health and the pressures it faces. As of its latest reporting, the company remains profitable, though navigating significant macroeconomic headwinds.
| Metric (Q1 2024) | Figure | Year-over-Year Change | Commentary |
|---|---|---|---|
| Total Payment Volume (TPV) | $5.3 billion | +49% | Shows continued strong demand from merchants. |
| Revenues | $184.4 million | +34% | Growth is lagging TPV growth, indicating take-rate compression. |
| Gross Profit | $73.5 million | -1% | Impacted by lower take-rates and higher processing costs. |
| Adjusted EBITDA | $46.5 million | -17% | Reflects margin pressure from the above factors. |
Source: dLocal Q1 2024 Financial Results.¹
The data reveals a critical narrative: while the volume of business is expanding at a healthy pace, the profitability of that business is under pressure. This is a direct consequence of operating in volatile environments. Currency devaluations, particularly in Argentina, and shifting fee structures have compressed margins.
More Than a Mini-Adyen: A Study in Contrasts
The “mini-Adyen” comparison, while useful, obscures more than it illuminates. The fundamental difference lies in their approach to risk and their core value proposition.
Focus versus Breadth
Adyen offers a globally unified platform designed for efficiency and consistency across both developed and emerging markets. Its strength is its breadth. dLocal, by contrast, is a specialist. Its value lies in its deep, localised infrastructure in places where Adyen may only have a surface-level presence. This makes dLocal an indispensable partner in its core regions, but also exposes it to concentrated risk.
Risk Profile and Volatility
Operating exclusively in emerging markets means dLocal’s fortunes are inextricably linked to geopolitical and macroeconomic instability. Currency controls in Nigeria or the hyperinflationary environment of Argentina are not peripheral concerns; they are central to the company’s quarterly performance. This risk profile is fundamentally different from that of Adyen, which generates the majority of its volume from more stable economies in Europe and North America. Furthermore, dLocal has had to contend with the lingering shadow of short-seller reports that have raised questions about its disclosures and fund flows, adding a layer of governance risk that demands careful due diligence from investors.
Navigating the Path Forward
The challenge for dLocal is to evolve from a hypergrowth story into one of sustainable, profitable growth. The market has already begun to price in the risks, with the company’s share price exhibiting extreme volatility. Management’s task is twofold: first, to stabilise margins and improve operational efficiency in its existing markets, and second, to execute a credible geographic diversification strategy.
Expansion into the relatively more stable, yet still fragmented, markets of Southeast Asia represents a significant opportunity. Success here would help dilute its heavy reliance on Latin America, which currently accounts for the vast majority of its revenue. Proving its model can thrive in different economic contexts—not just those defined by currency chaos—is paramount for its long-term investment case.
For investors, dLocal is not a set-and-forget compounder. It is a high-beta instrument for gaining exposure to the structural growth of e-commerce in the Global South. The speculative hypothesis to consider is this: the market currently values dLocal primarily as a proxy for Latin American currency risk. If the company can successfully diversify its revenue to the point where no single volatile economy can derail its earnings, its valuation multiple could permanently re-rate higher, reflecting a more resilient and geographically balanced business model. Until then, it remains a trade for those with a strong stomach for volatility and a deep understanding of emerging market dynamics.
References
- dLocal Limited. (2024, May 20). dLocal reports 2024 first quarter financial results. Retrieved from https://dlocal.gcs-web.com/news-releases/news-release-details/dlocal-reports-2024-first-quarter-financial-results
- IT Brief Asia. (2024). dLocal report reveals payment trends shaping emerging markets. Retrieved from https://itbrief.asia/story/dlocal-report-reveals-payment-trends-shaping-emerging-markets
- TacticzH. (2024, October 2). [$DLO provides payment solutions for some of the world’s largest companies…]. Retrieved from https://x.com/TacticzH/status/1938330187629785143
