Confidence Will Strengthen As Digital Payment Momentum Grows In Emerging Markets

Key Takeaways

• Ongoing product innovation and payment infrastructure investments enable revenue growth, higher margins, and operational efficiency amid accelerating digitization in emerging markets.
  
• Geographic and merchant diversification, along with stronger relationships with multinational clients, reduces revenue concentration risk and supports more stable, recurring income.
  
• Heavy reliance on top clients, regulatory challenges, declining take rates, disruptive payment technologies, and rising competition all threaten growth, margins, and long-term stability.

Catalysts

Operates a payment processing platform worldwide.

• dLocal's rapid expansion of its solution set (SmartPix for Pix, Buy Now Pay Later partnerships, stablecoin payment infrastructure) and continued onboarding of new alternative payment methods position it to benefit from accelerating digitization of payments in emerging markets, supporting sustained top-line growth and potential for higher take rates on new products-positive for revenue and gross margin.
  
• Broad-based TPV and revenue growth across multiple geographies (notably outside of Brazil and Mexico), alongside increased geographic and merchant diversification (top three markets now less than 50% of revenues), reduces over-dependence on key regions and supports more stable, resilient revenue streams, helping to structurally improve net margins.
  
• Deepening relationships with large multinational merchants-evidenced by increased country and payment method coverage per merchant and rising share of wallet-indicate significant runway for incremental, high-margin recurring revenues as emerging market e-commerce penetration climbs, improving both revenue visibility and operating leverage.
  
• Strategic investments in localized payment infrastructure, technology, and automation (including AI), even as headcount rises, have led to improved operational efficiencies and five consecutive quarters of EBITDA/gross profit ratio improvement; this operational leverage is likely to support further expansion in net margins and earnings as scale increases.
  
• Progress in acquiring new licenses (UAE, Turkey, Philippines) and product innovation (e.g., stablecoin on/off-ramp solutions and offline payment capabilities) will enable access to new verticals and underpenetrated regions, capturing more of the large addressable emerging-market payments opportunity and driving long-term revenue and earnings growth.

DLocal Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming DLocal's revenue will grow by 27.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 15.8% today to 16.8% in 3 years time.
• Analysts expect earnings to reach $422.6 million (and earnings per share of $1.22) by about July 2029, up from $192.1 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $486.3 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 16.1x on those 2029 earnings, down from 22.1x today. This future PE is greater than the current PE for the US Diversified Financial industry at 15.4x.
• Analysts expect the number of shares outstanding to decline by 0.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.7%, as per the Simply Wall St company report.

Risks

• Heavy revenue concentration among a small group of global merchants, particularly the top 20, exposes dLocal to customer churn risk and limits revenue diversification, making long-term revenue and earnings growth vulnerable if any major clients scale back or leave.
  
• Increased global regulatory scrutiny (such as heightened tariffs in Mexico, shifting fiscal regimes in Brazil, evolving capital controls, and potential digital taxes) and frequent currency devaluations in key emerging markets (e.g., Argentina) could raise compliance and operational costs, compressing net margins and adding ongoing earnings volatility.
  
• The general industry trend of decreasing take rates-driven by both merchant pricing pressure and competition-poses a structural risk to sustained gross profit growth, as confirmed by dLocal's own expectation for gradual, ongoing take rate erosion over the long term.
  
• The emergence and adoption of stablecoins and real-time payments could disrupt dLocal's fee-based intermediary business model over time, especially if merchants and consumers increasingly bypass existing payment facilitators, pressuring future revenues; notwithstanding dLocal's positioning as an on/off ramp, this technology shift remains a material long-term threat.
  
• Intensifying competition from both multinational tech giants (who may insource local payment infrastructure) and agile regional fintechs may erode dLocal's competitive advantage, leading to greater customer attrition and reduced pricing power, ultimately impacting both revenue growth and net earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $18.05 for DLocal based on their expectations of its future earnings growth, profit margins and other risk factors.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $21.0, and the most bearish reporting a price target of just $14.5.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $2.5 billion, earnings will come to $422.6 million, and it would be trading on a PE ratio of 16.1x, assuming you use a discount rate of 8.7%.
• Given the current share price of $14.49, the analyst price target of $18.05 is 19.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.