dLocal: The Tollbooth In Emerging Markets
Companies wanting exposure to rapidly growing economies need different kinds of payment solutions. The answer: dLocal
Company: dLocal (NASDAQ: DLO)
Market cap: $3.5 bn
Enterprise value: $2.7 bn
Net Cash: $800m
Float: 30%
EV/EBITDA: 6.9x
Growth: strong double digit
DISCLAIMER & DISCLOSURE: The author is invested in DLO at the date of publication but that may change. The views expressed are those of the author and may change without notice. The author has no duty or obligation to update this information. Some content is sourced from third parties believed to be reliable, but accuracy is not guaranteed. Forward-looking statements involve assumptions, risks, and uncertainties, meaning actual outcomes may differ from those envisaged in this analysis. Past performance is not indicative of future results. All investments carry risk, including financial loss. This analysis is for educational purposes only and does not constitute investment advice or recommendations of any kind. Conduct your own research and seek professional advice before investing.
What Does dLocal Do?
There was a fundamental problem in the world: global companies like Amazon, Nike, or Uber found it nearly impossible to collect payments from, or disburse funds to, customers in countries like Brazil, Nigeria, or Indonesia.
Think about this: the populations are approximately 288 million in Indonesia, 243 million in Nigeria, and 214 million in Brazil, making them the 4th, 6th, and 7th most populous countries in the world. Those are markets very much worth pursuing, yet logistics around payments long acted as a barrier to entry to multi-national companies.
Each market has its own fragmented web of local payment methods, arcane regulations, currency controls, and banking infrastructure.
So, dLocal was founded in 2016, by Andrés Bzurovski, Sergio Fogel, and Sebastian Kanovich, to solve this problem by offering a single API integration that abstracted away all that complexity.
Today, the company’s solution helps global merchants expand their online presence in hard to reach corners of the world.
The company acts as a “toll booth” for payments in most emerging markets, has a highly competent management team and is trading at arguably the most attractive valuation since its IPO.
The Company History
dLocal is a financial infrastructure company headquartered in Montevideo, Uruguay, but listed in the US. The company went public on Nasdaq in June 2021 at the peak of the fintech mania, achieving a market capitalization of ~$20 billion.
Focus on that $20 billion number. today this company has an enterprise value of less than $3 billion. I’ll cover this in greater detail in the valuation section below.
The company’s formative years were shaped by the challenges of operating across the Global South: navigating hyperinflation in Argentina, Pix in Brazil, and mobile money in Africa. Every difficulty is an opportunity. Create a solution and that becomes a valuable service. That is very much the DNA that is now so deeply embedded in the business. An iterative process of evolution.
However, this was not the only challenge that the company face. It sustained a short-seller attack by Muddy Waters in late 2022, which alleged discrepancies in the company’s TPV and receivable disclosures. The allegation referenced related-party transactions, including a disclosed loan from the company to co-founder Kanovich and former President/COO Jacobo Singer.
The company’s Audit Committee, consisting solely of independent directors, oversaw an independent review with outside counsel and forensic accounting advisors, concluding that the allegations were entirely unfounded and unsubstantiated.
However, perception is reality and the company had suffered a degree of reputational damage. Investor pressure flowing from the controversy led to a restructuring of the board. It became necessary to transition from founder-led intensity to professional management. So, co-founder Sergio Fogel moved to a non-executive advisory role and high calibre independent directors arrived including Paco Ybarra (former Citigroup executive) and Nelson Mattos, (formerly of Google and IBM).
Most notably, in 2023 Pedro Arnt, formerly of MercadoLibre, joined initially in the capacity as co-CEO to work alongside founder Sebastián Kanovich, but ultimately took the reins and became the sole CEO. His aim was to help scale the business after it had already grown into a large, fast-expanding payments platform in emerging markets.
Arnt, who began his career at Boston Consulting Group, left MercadoLibre after more than two decades there, including roughly 12 years as CFO. He explained that after having achieved enormous success at MercadoLibre, he was stepping down to take on new challenges and to pursue new opportunities. He said he was attracted by dLocal’s huge addressable market, its high-growth/high-margin/high-cash-generation model.
dLocal offered Arnt a chance to apply his operating and finance experience in a newer company with a different growth profile. The company specifically valued his track record of building through scale in Latin American tech, which was central to the appointment.
Guillermo Lopez Perez was appointed CFO in November 2025. His background is primarily at American Express and Visa, and he holds an MBA from the University of Chicago Booth School of Business.
When a CFO is relatively new to office, I always like to know why the change occured and there seems to be nothing to be concerned about here. Diego Cabrera Canay served as CFO from December 2020, before the IPO, until March 2024. He was replaced by Mark Ortiz shortly after Pedro Arnt became CEO. As a former CFO himself, Arnt likely had a clear view of the type of finance partner he wanted alongside him. dLocal framed the change as part of a broader effort to strengthen financial strategy and support the company’s rapid global expansion, effectively a management upgrade aligned with scaling needs.
However, only a year later, Ortiz stepped down due to an unforeseen health issue, stating that his health required his full attention. This piqued my curiosity, but again, I found nothing untoward. The departure caught dLocal by surprise, with Jeffrey Brown appointed interim CFO while the company searched for a permanent replacement. That replacement was Lopez Perez. Ortiz remained available during the transition, which points to an orderly handoff rather than a breakdown in relations. There is also no evidence that Ortiz moved directly into another role after leaving dLocal, which lends credibility to the health explanation provided.
Executive compensation, including performance-based equity grants, is tied to TPV growth and gross profit targets, providing an insight into objectives of the business. Customer acquisition, retention and increasing wallet share are the focus.
The Business Model
dLocal’s economic engine is remarkably simple and powerful. It is a pay-in/pay-out platform. “Pay-in” means DLocal enables a global merchant to collect money from a local consumer. “Pay-out” means it enables that same merchant to pay local vendors, drivers, or sellers.
The company’s blended take-rate (the percentage of Total Payment Volume (TPV) retained as gross profit) is the primary economic driver.
Importantly, dLocal is not a bank and does not hold customer funds on its own balance sheet in the traditional sense. Instead, it operates under local payment institution licenses held across more than 60 markets.
This is also not a consumer-facing app; it’s business-to-business (B2B) infrastructure. DLocal provides a single, direct Application Programming Interface (API), one contract, and one platform, a model it calls “One dLocal” .
The business model’s key assumptions, are that:
Global merchants (e.g., Amazon, Google, Uber, Western Union) will continue preferring a single vendor over building fragmented local infrastructure in every country in which it operates
As long as cross-border e-commerce and digital services grow faster in emerging markets than in developed ones, DLocal’s addressable market expands.
The company’s recent launches (BNPL Fuse, stablecoin settlement rails via a partnership with Stable Sea, and tokenized APMs) are attempts to embed itself deeper into the transaction flow, capturing more value and increasing switching costs for merchants (more on this in the Bull thesis).
Pedro Arnt joined dLocal as co-CEO in 2023 after spending roughly 24 years at Mercado Libre, including as CFO. That naturally raises the question of whether the two companies have any form of commercial relationship, but I could not find evidence of a direct connection. Strategically, the two companies occupy different layers of the payments stack. Mercado Libre’s payments arm, Mercado Pago, is largely a consumer and merchant ecosystem tied to its marketplace and fintech network. dLocal is more infrastructure-oriented, helping global enterprises access local payment methods across emerging markets. That said, there is likely indirect overlap. Mercado Pago is one of the dominant local payment methods in Latin America, and dLocal’s model is to aggregate local payment rails for international merchants. So a global merchant using dLocal could ultimately be accepting payments through Mercado Pago infrastructure in certain markets, even if Mercado Libre itself is not a dLocal customer.
dLocal takes an unusual approach to marketing. Instead of spending heavily on broad brand awareness campaigns, it focuses its efforts on a small group of high value targets. The goal is to reach decision makers at major multinational enterprises and demonstrate how dLocal can help them access and operate in emerging markets. As it grows, the company is deliberately expanding its roster of G7 blue chip customers by offering to provide them with easy access to emerging markets.
This advert was aimed at Sony (the Playstation division):
This one at AirBnB:
This one to Disney:
A differentiated approach speaks volumes about a business. dLocal is unafraid to break from the conventional playbook to stand out from the crowd.
Competition and the Moat
The critical nuance is dLocal’s economic moat is not built on processing Visa or Mastercard transactions, which are commoditized.
Instead, its value lies in integrating over 600 local payment methods that are entirely non-standard.
In Brazil, that means processing Pix, the instant payment system controlled by the central bank. In Peru, that means Yape. In South Africa, that means Payflex for buy-now-pay-later (BNPL). In Nigeria, that means Verve cards. In India, UPI. Then there’s Mexico which has become a massive growth engine for dLocal alongside Brazil.
It is important to understand that in G7 countries systems evolved around card intermediaries (Visa/Mastercard) and SWIFT for cross-border dollar settlement. They are slow, expensive and aimed at an existing well banked population.
Developing economies didn’t need to adopt legacy G7 infrastructure which some would argue is outdated. More particularly, it didn’t serve their needs.
India and Brazil skipped chip cards entirely and went straight from cash to mobile payments. They built central bank-controlled payment rails with instant transfers, zero merchant fees to promote business and aimed at a largely unbanked population. Today 70% of Brazil used PIX; 28% of India uses UPI, and these shares are climbing.
dLocal earns higher margins on these alternative payment methods (APMs) than on standard card rails because the integration is more complex and the regulatory burden is higher.
It’s easiest to understand dLocal through a simple example.
Imagine a customer in Mexico wants to buy something from a global enterprise merchants (like Microsoft, Amazon, and Netflix). At checkout, they don’t have a credit card and perhaps not even a bank account, so they choose to pay with cash.
Behind the scenes, dLocal instantly generates a smart phone digital payment voucher through OXXO (In Brazil, it would be Boleto Bancário; in Egypt, Fawry; etc.) The customer simply takes the barcode on their phone to a local convenience store, pharmacy, or bank and hands over the cash.
The moment the payment is accepted, the retailer’s point-of-sale system notifies dLocal. dLocal immediately sends a confirmation to the merchant via webhook, allowing the subscription to be activated or the goods to be shipped. It also handles the foreign exchange and settles the funds back to the merchant in US dollars or euros.
The same infrastructure works in reverse.
Imagine a global ride hailing platform operating across emerging markets. Every day it needs to pay tens of thousands of drivers in local currency. Rather than building payment connections country by country, it can use dLocal for Platforms to push funds directly into local digital wallets. Drivers can then withdraw the money over the counter at participating convenience stores, pharmacies, or banks if they prefer cash.
Building this network isn’t something that happens overnight. It requires years of integrating with local payment methods, financial institutions, retailers, and regulators in every market.
That’s a big part of dLocal’s moat. The technology matters, but the real asset is the local infrastructure and relationships that are incredibly difficult for a new entrant to replicate.
The total addressable market for cross-border payments in emerging markets is vast and growing, but the competitive landscape is bifurcated. dLocal’s competitive positioning is best addressed by making some fundamental distinctions:
Global competitors: The likes of Adyen, Stripe and PayPal (via Braintree) may be superior for standard card processing in developed economies with unified, credit-card-centric systems, they lack local payment method depth, in "High-Growth" emerging markets characterized by extreme fragmentation and non-traditional payment methods. A merchant using Stripe in Brazil can accept credit cards, but doing a Pix payout to a freelancer or processing a cash payment through Boleto is far more cumbersome. While these other global payment operators focus investment on growing in standardized payment markets, dLocal’s moat is its ability to differentiate itself from global competitors by solving for over 60 non-standardized markets.
Local competitors: The likes of Ebanx in Brazil and Flutterwave in Nigeria offer solutions in their home markets, but are unable to offer single-contract multi-country coverage for 60+ countries. dLocal’s moat here is its aggregation; the “One dLocal” model. The unique sales proposition for its customer base is to simplify payment complexity with a one-size-fits-all solution.
Cross-border emerging-markets payment services: This market is a smaller market and far less cleanly segmented. Companies operating in the space include AZA Finance, Fincra, Verto and Klasha. dLocal stands apart because it operates across multiple emerging-market regions globally, while most competitors are either more regionally concentrated or fragmented by customer need, such as FX and treasury management, remittances, or Africa-only payment flows. dLocal remains the broadest multi-emerging-market platform in the group.
The markets in which dLocal operates may not be G7 economies, but its solution enables access to over 71% of the world’s population.
dLocal targets regions that are "growing differently" rather than just "growing fast". : These "next frontier" economies (Africa, Asia and Latin America) are projected to drive over 60% of global GDP growth by 2030.
A country’s “unbanked” or “underbanked” status is a key indicator for dLocal’s entry.
dLocal acts as a bridge for global giants like Amazon, Meta, and Netflix to reach these billions of consumers who would otherwise be locked out of global commerce.
The difficulty of moving money across borders is significantly higher in dLocal's focus areas. These regions often face high regulatory hurdles and volatile local currencies which ordinarily make it difficult for international merchants to convert and repatriate their earnings.
dLocal’s raison d’être is to provide solutions for these problems.
There is always a risk that larger competitors may leverage their existing relationships, brand recognition, or financial resources to develop competing solutions, but to date all of their reinvestment in growth appears to be focused on developed economies operating on ‘standardized’ payment rails.
The moat for dLocal is its local density; the accumulation of payment method integrations, and 38 regulatory licenses (with 16 more in process) and operations across 60+ countries. This is not something that can be protected with a patent or exclusive contract; it is a product of time invested which is not easy to replicate, creating a cumulative operational first mover advantage.
More particularly, in emerging markets local payment methods are increasing in penetration year on year, at the expense of traditional payment cards, which strengthens the value proposition being offered by dLocal and widens its moat.
Numbers
This is a company growing at pace. Since IPO, free cash flow has compounded annually at over 58%. Revenue has grown even more quickly, indicating heavy reinvestment in growth. This is a capital light business (CAPEX on the bar chart below is barely visible). In terms of OPEX spending R&D consumes ~3% of revenue, while SG&A accounts for closer to 11%. Notably, SG&A had been running at ~25% of revenue prior to the IPO, so operating leverage is in evidence. After the initial platform is built, each additional transaction adds revenue with very little extra cost, allowing profits to scale rapidly with volume. Free cash flow is impacted by changes in working capital (evident in the 2024 numbers below), but this is purely down to timing of cash flows and nothing of concern. The business enjoys the operating efficiency that negative working capital delivers; their role as an intermediary naturally leads to a time lag between collecting from consumers and paying merchants, creating a working capital float. dLocal actively leverages the cash held within its operations, particularly in high-interest emerging markets alongside appropriate hedging of associated risk, to produce significant financial income that supplements its primary transaction fee revenue. This means that dLocal is able to operate with no debt and generate high returns on invested capital (ROIC), often above 30%. It doesn't require significant capital expenditure to scale, meaning growth doesn't automatically destroy working capital. Cash conversion is typically well over 100%.
The chart below shows how Total Payment Volume has increased since hte company’s inception back in 2016. This is clearly a business going from strength to strength.
The Q1 2026 provides a crystal-clear picture of dLocal’s financial reality: breakneck volume growth, healthy but compressing margins, and the strains of reinvestment.
Volume (TPV): $47 billion, up 73% year-over-year (YoY). This is the sixth consecutive quarter of >50% TPV growth. This metric signals that dLocal’s core product is more deeply embedded in merchants’ systems than ever.
Revenue: $336 million, up 55% YoY . Revenue is growing slower than TPV, which is the first critical tension.
Gross Profit: Record $119 million, up 40% YoY, core business profitability remains healthy.
Gross Profit Margin: Fell to 35% from 39% a year ago.
Operating profit: $57M exc. prior years tax adjustments (+25% YoY)(Management clarified during the May 14, 2026 earnings call that the one-time tax adjustment was related to the historical tax treatment of an installment payment product in certain markets);
Operating Cash Flow (before WC): $69m (+10% YoY). Underlying cash generation is strong, separate from timing issues.
Net income: $52M exc. tax adjustments (+11% YoY)
Corporate Cash: $452 million, a significant cash buffer to manage any short-term fluctuations.
The most important analytical insight from the numbers is the divergence between TPV growth (73%) and Gross Profit growth (40%). The take-rate (Gross Profit / TPV) is falling.
Management attributes this to a “mix-shift”. Not only is dLocal growing faster with large, established merchants who negotiate lower rates), but while ‘pay-ins’ via local credit cards generate premium take-rates, domestic instant-payment rails (Pix/UPI) compress the blended take-rate but bring unmatched volume.
This is not necessarily bad. It means dLocal is winning the largest, most stable merchants and growing market share in its key markets. The company is now trading margin percentage points for volume scale.
Operating expenses rose 58% to $62m (excluding the one-time tax adjustment), outpacing gross profit growth. This reflects the investment cycle in engineering and product headcount initiated in late 2025. Management openly states costs were heavier in H1 2026 but expects operating leverage to “flow through the P&L” in H2 2026 as that investment cycle ends . This is the key hinge point for earnings quality in the coming quarters.
The free cash flow yield is attractive but volatile; adjusted free cash flow dropped 63% in Q1 due to working capital timing. The recent cash flow pressure is partly due to dLocal fronting costs to onboard new "Tier 0" global clients (like Amazon, Netflix, and Meta) . While these clients operate on lower take-rates, their massive volume increases dLocal's strategic relevance and gross profit dollars, requiring upfront investment that temporarily impacts working capital. Management expects this to reverse in subsequent quarters.
Mr. Market
Sentiment
Mr. Market is deeply conflicted about dLocal.
On the one hand, analysts are bullish on the surface, with 8 out of 10 rating it a “buy” and a mean street price target of $17.65, implying >50% upside from the current $12 share price .
On the other hand, Mr. Market dislikes uncertainty, and he sees two things that make him uncomfortable: (1) a take-rate and margins that are compressing faster than expected, and (2) operating expenses growing faster than gross profit.
Mr Market bought into the initial narrative that DLocal was a hyper-scalable, "capital-light" machine with expanding margins. That is being challenged, at least for now. Instead, Mr Market is pricing in a "show me" story.
Mr Market believes in the volume but needs proof that management can convert that volume into sustainable, high-quality earnings without constant reinvestment.
In short, Mr Market is pricing dLocal with skepticism. The sentiment is cautiously optimistic but highly trigger-happy on any sign of weakness in the numbers.
Valuation
As of mid-May 2026, the stock trades at a forward P/E of approximately 17x. This is despite compounding its TPV at 88% CAGR since its founding in 2016, with net cash on the balance sheet, strong cash flows, a capital light model and strong management. This represents a significant discount to the payments peer average and a steep discount to its own historical valuation
Growth remains robust. In Q1 2026, TPV grew at 73% YoY, a sixth consecutive quarter of growth above 50%. Yet the charts below show how the market capitalization of the business and its share price have performed since its 2021 peak.
So, what’s going on here?
How does a business with such great economic fundamentals collapse in value?
This goes to the heart of the investment thesis.
The shares once traded close to $70 each, but today are hovering in the mid to $11 range. That’s a five year CAGR of -29.47%. But looking at the market cap or share price in isolation is misleading and will lead to the wrong conclusions. Instead, it is important to break it down into components, or factors, to understand what drove that price action. Only then is it possible to formulate reliable opinions on the path forward.
So, let’s look at the attribution break down of that negative 29.47% return:
It becomes clear that early investors learned the hard way that a great company at the wrong price makes for a poor investment!
From 2021 until 2026, revenue grew from $244m to over $1.2bn (~38% CAGR) and the share count reduced a little. Both of these factors are huge positive for shareholder returns. The good news is that these tailwinds continue unabated.
Almost all of the damage to the valuation can be traced to two factors:
First, profit margins have fallen from the mid-30s to the mid-teens as the company aggressively invested for growth. This wasn’t the result of a weakening business model, but a conscious decision to sacrifice near-term profitability in pursuit of long-term expansion. Management has indicated that this period of elevated investment is beginning to moderate, with margins expected to improve in the second half of 2026 and continue expanding into 2027.
Second, the valuation multiple has collapsed. The stock once traded at more than 290x earnings (what was Mr Market thinking?!?). Today it trades at around 17x earnings. Importantly, that multiple is being applied to earnings that have been temporarily depressed by heavy reinvestment. On a more normalised earnings run rate, the effective multiple is closer to the low teens. Factor in the company's fortress-like net cash balance sheet and the EV/E multiple is lower still.
The key point is that both major valuation headwinds have already done their damage. Margins appear to be near a cyclical low and may now be heading higher. Likewise, the multiple has already compressed from extreme levels to a far more modest valuation. If anything, the balance of probabilities suggests multiple expansion is more likely than further contraction over the next several years.
What might the next five years look like?
The good news is that top line growth remains robust, the share count is still contracting, margins have probably bottomed and multiple contraction is done. At current valuations, dLocal looks very attractive.
Assume that top line growth slows to 30% annually (prudently optimistic), investment spending moderates causing free cash flow to improve and margins to expand. the additional cash would enable a more aggressive rate of share repurchases, which would be highly accretive at current depressed valuations. All of this would result in a re-rating of the stock and perhaps a valuation multiple closer to 21. In this scenario, the 2030 share price would be over $70 (6.5x where it is today). The next five years could deliver over 42% CAGR total shareholder returns, with attribution across the factors as follows:
It is also worth noting that this scenario has a PEG of well below one.
dLocal has invested heavily onboarding platform clients including Amazon, Meta and Netflix. This bodes well for durable cash flows going forward and paves a long runway for growth. All of these customers offer subscription services with strong recurring revenue. Every time a customer pays the next periodic subscription fee for Amazon Prime, or Microsoft 365 or Netflix, dLocal takes a cut. It is the capital light toll-booth model that GARP investors crave.
How likely is this to play out?
Let’s dive in to the Bull and Bear cases.
Bear Thesis
The strongest bear case against dLocal is that the company is a victim of its own success.
The bears would argue that the company’s revenue is concentrated among a few large global merchants.
A renegotiated contract with a key customer or a merchant deciding to build internal capabilities could materially impact results.
Also, they say that the very merchants dLocal targets, the global giants, may be its biggest threat. Amazon, Google, and Uber didn’t get to their size by ceding strategic control. As a country like Brazil or Nigeria becomes economically important, these merchants may eventually seek to build their own local payment infrastructure, cutting out dLocal entirely.
Bears would say that what looks like 73% TPV growth today is just a temporary rental of dLocal’s license before the tenant buys the building.
Furthermore, bears would say that the take-rate compression is not just a “mix-shift” but a structural feature of the business. As low-cost, state-sponsored rails like Brazil’s Pix and India’s UPI proliferate, dLocal’s premium pricing may erode.
Gross profit / TPV ratio, having declined from 1.05% to 0.84% gross profit yield in one year, is quoted as evidence of this trend.
The bears will point to Q1 2026’s gross profit margin drop from 39% to 35% as the canary in the coalmine. If margins compress another 400 basis points, the company will be growing revenue but generating less absolute gross profit.
If emerging market e-commerce growth slows, dLocal’s TPV growth, which drives everything, would decelerate sharply, while fixed operating expenses would reverse the tailwind of operating leverage.
The company’s April 2026 appellate court win (dismissing a securities class action) removed one legal overhang, but operational regulatory risk remains. A single unexpected tax ruling or a sudden currency control law in a major market like Nigeria or Argentina could wipe out an entire quarter’s worth of profit.
Ultimately, the bears would argue the risk-reward is unattractive for a business trading at 15x forward earnings that faces both secular margin compression and geopolitical volatility.
One final bear point centres on General Atlantic (GA), an investment firm which still owns roughly 22% of dLocal and has been a cornerstone shareholder since 2019. The concern is straightforward. When such a large holder eventually exits, the market has to absorb a meaningful amount of supply.
Investors have already seen a preview of this dynamic. In September 2025, GA sold 15 million Class A shares in a secondary offering, alongside an option for another 2.25 million shares. The shares were priced at $12.75, a material discount to the previous day’s close. The stock fell almost 8% in a single session as the market digested the additional supply.
That episode reinforced fears that GA’s remaining stake could act as a structural overhang on the shares. Investors are now left asking when the next block might come to market, and at what price.
There is also a broader governance concern. GA’s incentives may increasingly shift from long-term value creation toward engineering an efficient exit. That does not necessarily imply malicious intent. Private equity firms eventually need liquidity. But public market shareholders have to recognise that a large financial sponsor may prioritise portfolio realisation, fund timelines, or tax structuring considerations over the long-term compounding potential of the underlying business.
This concern intensified after reports that GA encouraged dLocal to explore strategic alternatives, including hiring Morgan Stanley to evaluate a potential sale of the company to larger fintech firms or other private equity buyers. For some investors, that raises the possibility that the company’s future direction could be shaped more by shareholder liquidity objectives than by operating fundamentals.
To be fair, selling by a major shareholder is almost always interpreted negatively by the market, even when the motivation is entirely routine. Fund expirations, portfolio concentration limits, or simple rebalancing can all drive sales that have little to do with the underlying business quality.
Only time will tell whether GA ultimately proves to be a structural headwind to the investment case, or simply the source of an unusually attractive entry point.
Bull Thesis
The bull case argues that the market is misreading the Q1 2026 results entirely.
Bulls say that the 73% TPV growth is proof of accelerating adoption, not a problem to be solved. The take-rate compression is the natural, healthy consequence of mixing in massive, high-retention volume from merchants like Amazon and Microsoft.
Bulls say that the risk of dLocal’s largest customers creating the infrastructure to cut it out is overstated. Building infrastructure requires local regulatory licenses in dozens of volatile jurisdictions. While Amazon and others can easily build an API, do they want to negotiate and hold 38 separate local central bank licenses across emerging markets? This is less about technology and more about the friction of local regulatory compliance.
The bulls would argue that Gross Profit, up 40%, is the only number that matters for intrinsic value, and 40% organic growth is incredibly rare, highlighting that the runway ahead for dLocal stretches far into the distance and is a long way from being exhausted.
In terms of margin contraction, the current operating expense growth is a strategic choice to invest for the next decade, not a sign of a broken model.
Operating expenses grew faster than gross profit, delaying the operating leverage investors expected from a capital-light platform model. ‘Delaying’ being the operative word.
The bull case requires that the investment cycle ends as promised and that the second half of 2026 shows operating expense growth lagging gross profit growth.
When the investment cycle ends, the acquisition of sticky customers will pay huge dividends. Earnings will inflect significantly and the true earnings power of the business will become evident.
The bull thesis also rests on the “optionality” of new products. BNPL Fuse, stablecoin settlement rails, and tokenized alternative payment methods are not just dLocal marketing.
The Fuse product allows ‘Buy Now, Pay Later’. In markets like South Africa, over 90% of consumers don't have access to a credit card. In Latin America, that figure hovers around 60%. And when flexible payment options aren't offered at checkout, up to two-thirds of potential buyers don’t buy. That's where Fuse comes in. It gives merchants a single API to connect with multiple local BNPL providers, while dLocal handles all the licensing, compliance, and settlement details for each market. It drives truly incremental revenue uplifts for merchants and adds enormous value, thereby cementing the relaitonship between dLocal and its customers. Importantly, dLocal is simply facilitating the BNPL service as an intermediary and is not providing the credit itself. It is paid a fee which is yet another source of income.
Stablecoins aren't a gimmick for dLocal; they drastically lower the friction of merchant repatriation, solving the "trapped cash" problem in certain jurisdictions (e.g. parts of Africa, India and Argentina). These carry higher take-rates and can be cross-sold to the existing merchant base without incremental customer acquisition cost.
Furthermore, the expansion into Asia (Vietnam, Indonesia) and the Middle East (Oman, Kuwait, Qatar) opens up entirely new continents for growth as digital economies there formalize.
The company has a significant capital return program, including a significant share buyback and a dividend policy, supported by what management calls a "cash-generating machine" business model.
Insider ownership remains high at 70.7% providing strong alignment of interests, and a board member recently purchased 20,000 shares on the open market for $237,000 as recently as May 2026.
What to Watch For
Where the bears see a company that has harvested all the low hanging fruit and is now past its peak performance, the bulls see a mispriced compounder.
The following indicators, all observable in future SEC filings, will determine which thesis prevails:
Watch the Q2 and Q3 2026 reports to see if the 35% gross margin was a trough or a new baseline. Stabilization or expansion here would be a powerful bullish signal.
Gross profit / TPV ratio: If the 0.84% from Q1 2026 stabilizes or expands, the bear case on structural margin erosion weakens. If it continues declining, the bull case falters.
Management promised operating expenses would moderate in H2 2026. If Q3 shows operating expense growth slowing below gross profit growth, the “investment cycle” narrative is validated.
New product growth, particularly the company’s commentary on BNPL and stablecoin adoption rates will offer a clue on the future trajectory of the business. Look for mentions of “take-rate uplift” or “merchant adoption rates” on earnings calls.
Client concentration risk remains high. Any announcement of a major renegotiation or loss of a top 5 merchant would damage the valuation.
The Q1 2026 adjusted free cash flow decline was attributed to a temporary timing issue. Q2 and Q3 filings will show whether a working capital reversal occures and whether cash flow normalizes.
The likes of Adyen, Stripe and Paypal could decide to aggressively acquire local licenses and build out APM coverage, or a consortium of local champions could form a cross-border alliance. For now, DLocal’s moat appears durable, but the company is stretching itself by moving into new products (BNPL, stablecoins) and geographies (Asia and the Middle East). This expansion, if executed poorly, could fracture focus and weaken its core value proposition.
The company generates cash. If the board authorizes a more significant share buyback, it would signal confidence that the stock is undervalued, underpinning its valuation.
DLocal’s management has guided for 50-60% TPV growth and 22.5-27.5% gross profit growth for the full year 2026 . If they hit the high end of both ranges and demonstrate that operating leverage in the second half, the current valuation (~15x forward earnings) will look absurdly cheap in retrospect. If they miss, the stock may re-rate to downwards as it becomes a “volume, not value” story.
For the twelve months ending March 31, 2026, stock-based compensation represented 10% of the company's operating income, totaling $24.2 million. This should be monitored.
Summing It All Up: Is DLocal a Good Investment?
The global cross-border payment market is projected to grow at a strong CAGR of 7.84% from 2026 to 2033, driven by e-commerce and financial inclusion in emerging economies. This is a strong wave for dLocal to surf.
It may also be the best surfer in the competition. Its TPV growth of 60% in 2025 significantly outpaced overall market growth rate, indicating strong market share gains.
Why? The ‘One dLocal’ platform creates a powerful network effect where adding more merchants attracts more local payment methods, which in turn makes the platform more valuable for the next merchant. This flywheel is certainly spinning.
As a scaled, software-based platform that is focused exclusively on emerging markets, dLocal operates at a lower cost than its less specialized competitors. This is a business in which there is no one magic ingredient, but a combination of lots of little things differentiates it from others in the industry and provides it with a tangible competitive advantage.
Better still, its asset-light business model provides significant operating leverage which ought to translate into earnings growing even faster than the top line.
dLocal's ROIC for the quarter ending March 2026 was an exceptionally high 68%, vastly exceeding its cost of capital and the software industry median.
Its also a clear winner from AI, actively using it in partnership with Microsoft to enhance fraud detection, improve smart routing, and boost operational efficiency.
So how can we sum it up?
dLocal is a high-quality business with a genuine, durable moat trading through a temporary, but painful, phase of margin compression and investment. The question for an investor is not whether the company will grow; it will. The question is whether the growth will be high-return, expanding-margin growth or low-return, capital-intensive growth.
The bear case is legitimate, while the bull case is plausible yet risky.
For an investor with a multi-year horizon and tolerance for emerging market volatility, dLocal offers a reasonable probability of asymmetric upside.
The price is discounting a low-growth, margin-eroding future. The reality, backed by $14 billion in quarterly TPV, is that dLocal remains the most important tollbooth for global e-commerce in the Global South. The toll rate is dropping, but the traffic is exploding. Owning dLocal is a bet that the traffic explosion wins over the toll rate decline.
At current prices, that isn’t an unreasonable bet.
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25 likes? Are you kidding me? Great piece.
One topic confused me:
In the competition/moat section, regarding UPI & PIX, you said:
"dLocal earns higher margins on these alternative payment methods (APMs) than on standard card rails".
But in the Numbers section you said:
"‘pay-ins’ via local credit cards generate premium take-rates, domestic instant-payment rails (Pix/UPI) compress the blended take-rate"
How are those not contradictory? Are UPI & PIX high or low margin for DLO?
Hi James — great article. I’ve been following dLocal for a while and wanted your take on something. The payments space has sold off on fears around stablecoins, AI agents, and software becoming cheaper to build. Do you think any of those trends materially impact dLocal? Pedro seems to be leaning into them, but one could argue they increase long-term risk—especially stablecoins, since EM markets without established rails could adopt them faster.
Also, as EM markets mature, they may need fewer “bridge” solutions over time. How do you think about that risk? Would love your perspective.