dLocal - Q2'2021

Rubenslash posted a fantastic introduction of dLocal [1], an emerging markets payments platform. Yesterday, they reported their first public quarter since IPO, and the market was pleased with the results, sending its share price +30%. For anyone looking to better understand the company, and dig deeper at the results, check out their earnings presentation [2].

Financial Highlights:
-Total Payment Volume (TPV) reaching $1.5B, representing 319% YoY growth (57% sequentially)
-Revenue of $59M, which is 186% YoY growth (46% sequentially)
-Adjusted EBITDA margin of 44%, up from 40% a year ago
-Net income of $17.7M, up from $7.4M last year
-Net revenue retention of 196%, up from 159% YoY

Business Highlights:
-Added Vietnam, Malaysia, Guatemala, and the Dominican Republic to its network, bringing the total number of serviceable countries to 30
-Launched an “issuing as a servicing solution” for merchants to easily issue prepaid cards in local currencies
-Acquired PrimeiroPay for $40M in cash (a rival emerging markets payment servicing provider)

Other Highilghts:
(1) Soft Compares: While the financial highlights are impressive, its worth noting that YoY comparisons are based on a peak-pandemic quarter, where payments processing – particularly in LatAm, were negligible. The COO noted “if you look at YoY growth rate numbers, the reason the percentages are so high is that Q2 2020 was right in the middle of the pandemic, and we’re getting the benefit of a slightly lower base last year in the second quarter. I think as we look out over the next two quarters, we expect our dollar numbers to look good, but I would not predict our percentage growth rates that are similar to what we’ve been able to achieve in the second quarter, because Q3 and Q4 last year were stronger quarters than Q2”

(2) Declining Take Rate [3]: Its take rate dipped ~200bps sequentially to 4.1%. In 2020, the take rate notched just above 5%, so it looks like there is a downwards trajectory. Management states that “the take rate is based on the underlying business mix. In 2020, pay-ins had swung to a larger portion of our overall business, resulting in a higher revenue over TPV ratio (i.e. take rate) of 5%. This ratio also decreases as the volumes with some of our largers merchants increase given that we set pricing tiers by volumes in our merchant agreements. Higher volumes with our largest merchants typically decreases the ratio, but it’s great for our business as they bring incremental EBITDA.” However, with PayPal operating with a take rate of 3%, Adyen of 0.2%, and Stripe somewhere in the middle – it seems to be difficult for dLocal to maintain its higher rate as it continues scaling

(3) Boosted by Inorganic Growth: Although PrimeiroPay, the company they acquired, is a very small company, it wasn’t until the Q&A where an analyst asked if their financials also included the impact of the acquisition that management addressed it. They did not disclosed how much of their revenue was attributed to the acquisition, stating that “it’s not significant enough to make much of a difference to the numbers, but we’re not disclosing the PrimeiroPay numbers separately because it was an asset deal. We will not be breaking out those numbers, but it’s not significant enough to be broken out either.”

My Takeaway: dLocal is operating in a massive and continuously growing niche, as emerging markets races to catch-up (and sometimes even leapfrog) mature markets across digital payments and e-commerce. With a powerful platform to support merchants on these markets that struggle to boost conversion rates and keep up with the ever-changing regulatory landscape – it seems like they are just scratching the surface, as evidenced by their recent report. However, it’s also important to monitor some concerns and track them overtime as the business continues its public journey in the quarters ahead. It will be interesting watching a small 5-year-old fintech from Uruguay continue to disrupt large financial incumbents in countries that have been historically underserved by the existing financial system!

Please read this before posting https://discussion.fool.com/we39re-drifting-34904974.aspx and visit
https://discussion.fool.com/for-board-newcomers-and-oldtimers-34… to maximize your learning of the board

[1] https://discussion.fool.com/introducing-dlocal-to-the-board-3489…
[2] https://investor.dlocal.com/wp-content/uploads/reports/2021/…
[3] dLocal gets paid either a % of volume with a merchant, or a flat-fee across its transactions


However, it’s also important to monitor some concerns and track them overtime…

What are the concerns you have, RMTZP?

Re the earnings call, I thought the 196% NRR was amazing, and they expect it to stay at a pretty high level (but less than 196%) for the next 12 to 18mo till it flattens out at 150-160%!

“So it’s a cohort-based measure, Tito, and I think we discussed this with you during the IPO as to how those cohorts trend out. We’ve added some pretty large merchants in the last 12 months. We expect them to stabilize in about 24 months from the beginning of when they come on our platform. So I would say it’s in the next 12 to 18 months is where we see the 150% to 160% to be a stable place.

To add to the bull case for DLO,

  1. The company solves a big problem for international companies. To move money in and out of each country, companies have to comply with data security protocols, and adherence to regulatory, tax and compliance requirements. Imagine doing this for every country you are operating in.

  2. I haven’t come across much competition in this niche area of digital payments yet (not to say there isn’t any competition). Being a first mover and more visible now after their listing has its advantages as the next point illustrates.

  3. Companies subject DLocal to a rigorous vetting process which takes several months. Once they onboard a payments platform, do you think they want to go through the same process for other payment companies? Unless DLO messes up, my bet is their customers won’t rock the boat.


Thanks for this, their report caught my eye too.

Why do they not provide q3 guidance? I can’t see any kind of guidance referenced, any ideas on what they are guiding for full year?