$DLocal Limited(DLO)$ is one of the most asymmetric opportunities in the market now.
Payment volume is growing insanely fast, it is rapidly expanding in emerging markets, and the take rate is finally increasing.
Here is why it's a 5x opportunity now: 🧵
1/ What does DLO do?
It's actually an online payment gateway, similar to Stripe and Adyen.
Where it differs is that it brings together local payment methods in one API.
This provides it with an advantage where payment methods are fragmented, i.e, in emerging markets.
Image
2/ It's rapidly growing its presence in emerging markets.
It's the leading payment gateway API in Latin America, and it's growing fast in Africa and Asia.
Currently, they are active in over 30 countries and support more than 600 payment methods.
Image
3/ Their emerging market focus provides them with several tailwinds.
In the next 5 years, emerging market GDP growth will double that of developed markets.
Internet and credit card penetration will also grow rapidly.
All these will support the growth of online payments.
Image
4/ Result? DLO's total payment volume (TPV) will skyrocket.
It has grown its TPV by 60% annually since 2021.
Last quarter, it posted 53% TPV growth.
This won't slow down anytime soon, as online payment adoption in emerging markets is still in its early innings.
Image
5/ Its performance since it became public proves the thesis.
It grew revenues 60% annually since 2020, while net earnings grew 48%.
Given that it's still a small company at $3.3 billion market cap, it has a long runway to sustain fast growth.
Image
6/ Its balance sheet is also rock solid.
Its equity pool is 10x larger than its debt, and its annual EBITDA can pay off all the debt in under a year.
This is one of the strongest balance sheets I have seen in the industry.
Image
7/ Its margins have been shrinking for a while, but now they are getting stabilized.
It faced stiff competition in its core market, Latin America, from legacy providers like Stripe in recent years.
This led to a shrinkage in margins, but they have fought back successfully.
Margins stabilized in 2024 and ticked upward since then.
Image
8/ Their take rate is also ticking upward.
They saw their take rate shrink in recent years as they were overcharging because of their competitive advantage.
They had to reduce it to keep large merchants due to entries by other players.
However, its take rate has largely stabilized in the last few quarters, and it even ticked upward this quarter.
This means that they are reinforcing their competitive position in the market.
Image
9/ They are exceptional in capital allocation.
Given that they have nearly no debt, the right metric to measure their capital allocation performance is ROE.
Their median ROE in the last 5 years was 32%, which is 20% above the average.
This means that investors can also expect above-average returns on their investment.
Image
10/ Valuation remains attractive.
Given the opportunities ahead and its small size, it can easily grow revenues 30% annually in the next 5 years.
This gives us $2.8 billion in revenue.
Assuming net margin expansion to just 25% and we get $700 million in net income.
Slap a conservative 20 times exit multiple and we have a $14 billion company.
It's valued at just $3 billion today.
Nearly 5x return in just 5 years.
Image
For whom haven't open CBA can know more from below:
🏦 Open a CBA today and enjoy privileges of up to SGD 20,000 in trading limit with 0 commission. Trade SG, HK, US stocks as well as ETFs unlimitedly!
Find out more here：
Comments