TIP834: DLocal (DLO): Multibagger Potential with Decade-Long Runway w/ Daniel Mahncke & Shawn O’Malley

Episode Summary

Executive Summary: The episode pitches DLocal, a B2B payments infrastructure company focused on emerging markets that helps global merchants like Amazon, Netflix, Uber, and Spotify collect and disburse payments across fragmented local rails. The hosts argue DLocal benefits from secular growth in emerging markets, strong customer relationships, and operating leverage, but face risks from customer concentration, falling take rates, competition, and regulatory/macro volatility.

Main Topics: What DLocal does and why it exists (Priority: 5/5): DLocal is presented as a payments infrastructure layer for global merchants operating in emerging markets, solving local payment fragmentation, regulation, and cross-border complexity through a single API and local integrations. Emerging-market tailwinds and customer base (Priority: 5/5): The bull case rests on two megatrends: digitization and growth in emerging markets, plus expansion by Western tech giants into those markets. DLocal’s customer list includes major global brands, adding credibility. Take rate decline and monetization debate (Priority: 5/5): A major debate centers on whether DLocal’s falling take rate indicates commoditization or deliberate volume-first pricing. The hosts discuss operating leverage, merchant discounts, and the possibility of eventual stabilization. Products and conversion uplift (Priority: 4/5): DLocal’s value proposition includes smart routing, smart APMs like SmartPIX, and BNPL connectivity, all aimed at improving authorization rates and conversion for merchants, especially subscriptions. Risks: concentration, regulation, and regional exposure (Priority: 5/5): The company is highly concentrated in Latin America and among a few large customers, with meaningful exposure to Brazil, Argentina, and Mexico. Regulatory shifts and macro volatility, especially in Argentina, can materially affect results. Capital allocation, governance, and leadership (Priority: 4/5): The episode highlights strong insider ownership, buybacks, and dividends, plus CEO Pedro Arnt’s background at Mercado Libre as a key positive. It also discusses historical issues around disclosures and a short report. Valuation and portfolio fit (Priority: 4/5): At around 15x earnings, DLocal is framed as reasonably priced for its growth profile. The hosts conclude it is attractive enough for a small position, with potential to add on weakness.

Key Arguments: DLocal is not a typical payments company; it serves large B2B merchants across fragmented emerging markets rather than consumers. Its customers are high-quality global platforms, which supports confidence that the service is operationally important and extensively vetted. The company sits at the intersection of two growth engines: rising digital commerce in emerging markets and Western platforms expanding there. Falling take rates do not necessarily imply deterioration because DLocal is intentionally discounting to win volume and may benefit from operating leverage. DLocal adds value by improving conversion, routing, and recurring billing in systems that were not designed for cross-border or subscription use cases. Customer and geographic concentration create real risk, but the breadth of markets and merchants also makes DLocal hard to replicate quickly. The company’s moat is not product-only; it is built on scale, licenses, local integrations, and regulatory complexity. Buybacks, dividends, and low stock-based compensation suggest disciplined capital return, though SBC is not negligible when measured against gross profit. The main long-term thesis risk is not volume loss alone, but failure to monetize volume growth into durable margins and earnings. CEO Pedro Arnt is viewed as a strong steward because of his Mercado Libre background, insider ownership, and perceived commitment to the strategy.

Data Points: Revenue growth: 50%+ - Initial setup described DLocal as growing rapidly while still trading at a mid-teen earnings multiple. Valuation: ~15x earnings - The stock was described as relatively cheap given its growth and cash generation. Cash on balance sheet: Meaningful, but not 60% of market cap - Compared with the prior pitched stock (Pinduoduo), DLocal has substantial cash but less extreme cash backing. Founded / spin-off year: 2016 - DLocal was spun out of AstroPay in Uruguay in 2016. Downloads / show history: 200 million+ downloads - The podcast’s general intro, not DLocal-specific. Latin America revenue share: ~80% - DLocal’s business is heavily concentrated in LATAM. Revenue share of Brazil, Argentina, Mexico: ~50% of total revenue - These are the largest individual markets within LATAM for DLocal. Brazil, Argentina, Mexico share within LATAM: ~80% of LATAM revenue - The three largest countries dominate the company’s regional mix. Pay-in share of volume: ~70% - Pay-in, where merchants receive customer payments, is the majority of DLocal’s volume. Payout share of volume: ~30% - Payouts cover merchant disbursements to drivers, contractors, sellers, and similar recipients. Enterprise customers: ~760 - DLocal serves a large number of merchants, but revenue is still concentrated among the largest ones. Top 10 customers as % of revenue: 62% - Shows substantial customer concentration risk. Top 2 customers as % of revenue (2024 reference): 10% - Previously disclosed concentration in just two merchants. Net revenue retention (2023): 150% - Existing customers expanded volume significantly in 2023. Net revenue retention (2024): 113% - A temporary dip that raised concerns about merchant retention/volume mix. Net revenue retention (2025): 145% - Recovery in retention signaled renewed strength with existing clients. Net revenue retention streak: Above 140% for four straight quarters into 2026 - Used to argue customer relationships remain durable. Take rate high point: 2.9% - Peak take rate in 2020. Take rate current level: 0.9% - Current take rate discussed as structurally lower than the historical peak. TPV growth (last year): ~60% YoY - Total payment volume showed strong recent growth. TPV since 2019 CAGR: ~80% - Long-run growth in payment volume has been exceptional. TPV in 2024: ~$40B - Current scale of total payment volume. TPV forecast (model): 38% CAGR through 2028, then 20% - Used in valuation assumptions. Take rate forecast (model): Below 0.7% within five years - Base-case assumption for continued take-rate compression. Gross profit guidance (2026): ~30% growth - Management guidance referenced in the model discussion. Gross profit CAGR assumption: 19%–20% - Base-case forward assumption. Expected return (base case): ~22% - Projected return with a margin of safety under the model. Bear case outcome: Stock could fall ~50% - If margins fail to expand and operating leverage does not materialize. Buyback authorization: $300M - Board-authorized repurchase program announced earlier in the year. Prior buybacks: ~$100M in 2023 and ~100M in 2024 - Recent capital returns to shareholders. Dividend payout ratio: ~30% of free cash flow - Produces roughly a 3%–4% yield. Dividend yield: ~3%–4% - Noted as part of total shareholder return. Share repurchase impact: ~7%–8% of company over 2–3 years - Based on the current buyback authorization and market cap. Stock-based compensation: 0.2% of revenue; ~5% of gross profit - Used to assess dilution and incentive quality. Insider/founder ownership: ~33% - High ownership aligns management with shareholders. CEO ownership: ~0.8% - Pedro Arnt’s personal stake, despite not being a founder. Management comp (2024): ~$20M - Up from about $5M two years earlier. Licenses: 38 regulatory licenses - Part of the scale/regulatory moat argument. Market coverage: 60+ markets - Geographic reach cited as a barrier to entry. Local payment integrations: 600+ - Operational complexity and scale advantage. Annual pay-in transactions: 3.5B - Illustrates the data advantage behind routing and optimization. Merchant conversion uplift: 20 percentage points - Local processing versus international card transactions. Decline rate on some cross-border transactions: Up to 50%+ - Example of the friction DLocal helps solve. Cardholder abandonment after decline: ~35% - Used to explain why authorization success matters. Stablecoin activity in Argentina: ~$34B in a year - Illustrates stablecoin usage as a cross-border workaround.

Pivotal Quotes: "Because at the end of the day, our business today grows if the businesses of our large digital global clients grow in these markets." — Pedro Arnt: Explaining DLocal’s dependence on global platform expansion in emerging markets. "I'd rather have the merchant relationship be processing his payments, adding value for him, because I trust that there are a couple of things that will begin to change going forward that certainly will allow take rates to bottom." — Pedro Arnt: On why DLocal is prioritizing volume and relationships over short-term monetization. "I never ask if the market is going to go up or down because I don't know. And besides, it doesn't matter. I search nation after nation for stocks, asking where's the one that is lowest price in relation to what I believe it's worth." — Sir John Templeton: Closing quote about value investing and international stock selection.

Implications: DLocal looks like a high-growth, high-quality infrastructure play on emerging-market digitization, but investors must accept volatility, concentration risk, and uncertainty around long-term monetization. The key watch item is whether scale and data translate into durable margins.