$DLO DLocal Limited Deep Dive and 2024 Outlook

After the short report 3 Quarters ago, the company has posted decent earnings, is it time to buy?

DLocal, a Uruguayan fintech company founded in 2016, simplifies online payments in emerging markets for global merchants. Their "One dLocal" platform acts as a one-stop shop, handling everything from payment processing and currency exchange to compliance and fraud management. This allows merchants to accept payments (pay-in) and send payouts (pay-out) across 39 countries in Asia, Africa, Latin America, and the Middle East. They do one part (minus shipping and logistics) that competitors GLBE 0.00%↑ Global-E does.

DLocal targets high-growth tech industries within these regions, and even boasts a major e-commerce platform as a client. Their technology integrates seamlessly, eliminating the need for merchants to navigate complex local regulations and payment methods in each market.

DLocal's technology and services cater to major clients such as Google, Microsoft, Spotify, and Nike, enabling them to sell products in developing countries. The company has demonstrated impressive revenue growth, with a 5-year CAGR exceeding 111%, strong EBITDA margins over 30%, and significant free cash flow generation. Some of the challenges include:

1. Investigation by Argentine Authorities:

   • dLocal has received an information request from Argentine customs authorities. The request is related to an alleged fraud probe.

   • Argentine news outlet Infobae reported that the government is investigating dLocal for “improper maneuvers” and fund transfers abroad totaling at least $400 million, which could constitute possible fraud.

   • In response, dLocal issued a statement calling the report “factually inaccurate” and misleading.

   • Co-founder Sergio Fogel emphasized that the company strictly follows regulations and will provide the requested information by the June 6 deadline.

   • Despite the recent scrutiny, Nasdaq-listed shares in dLocal rose over 8% on Tuesday after plunging more than 17% last week following the Infobae report.

2. Previous Controversies:

   • U.S. short-selling firm Muddy Waters previously criticized dLocal in a report, citing “red flags” and accounting discrepancies in its balance sheet. This triggered a sell-off that brought down the fintech’s U.S.-listed shares by over 50%.

   • DLocal responded to Muddy Waters’ report by conducting a special audit of its accounts.

   • Despite these challenges, dLocal posted a 35% year-on-year jump in its first-quarter net profit.

3. Positive Outlook:

   • dLocal operates across most of Latin America, parts of Africa, and Asia.

   • The company forecasts record payment volumes for 2024, expecting an increase of up to 50% to reach a total of $27 billion.

   • Growth is anticipated from both its largest customers and less mature markets