Today we’ll look at a company that is at the intersection of two of the most interesting megatrends for the next decades – the growth and digitization of emerging markets and the expansion of global tech leaders like the Mag7 in emerging markets.

If you live in South America, Africa, or parts of Asia, and you’re subscribed to Netflix, YouTube Premium, or Spotify, took an Uber recently, or shopped on a Shopify store, there’s a good chance dLocal was facilitating the payments in the background.

dLocal gives all of these companies access to over 40 emerging markets through a single solution. So the more money Amazon and co. make in Brazil, Argentina, Mexico, and so on, the better for dLocal.

That’s a trend I’d like to hop on board. If things are as they seem and the valuation is right!

— Daniel

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dLocal’s story starts in Uruguay in 2016, where a team of founders – namely Sergio Fogel, Andrés Bzurovski, Sebastián Kanovich, Jacobo Singer – had already built a consumer payments company called AstroPay. AstroPay let people across Latin America and Asia pay on international websites when their local cards didn't work.

The idea originally came from Sergio Fogel, but Sebastián Kanovich was one of the first employees and quickly became the CEO of the company. He saw a big opportunity in this business after thinking about all the daily problems he had with international payments. For example, he is a huge NBA fan, but wasn’t able to buy an NBA League Pass with his local credit card. International payments are a problem that most of us living in the U.S. or Europe rarely come across, but which is a daily struggle in many other parts of the world.

We will get into why payments fail so often in a second, but you might ask yourself why I tell you about AstroPay when this newsletter is about dLocal. Well, because dLocal was spun out of AstroPay in 2016. It was part of the company before, but the team recognized that there’s an even bigger opportunity in what dLocal does compared to AstroPay.

And this turned out to be a smart move, as dLocal became the first-ever Uruguayan unicorn. Today, it processes around $40 billion a year across more than 40 countries. That's an 88% compound growth rate, sustained for the better part of a decade. Thus, dLocal now processes in a single day what they processed in an entire year 10 years ago. Pretty crazy!

But what do they actually do and how is it different from AstroPay?

The most obvious difference is that AstroPay was aimed at the consumer. dLocal, on the other hand, is a B2B business. Its customers are Netflix, Spotify, Google, Uber, SpaceX, Temu, and so on.

We have done pitches on all of those companies in the past, and all of them have emerging market growth high up on their to-do list. Expanding successfully into the Global South is one of the major growth and profit drivers. You’re talking billions of people, growing economies, fast digitization, and lots of demand.

But what is characterized as “emerging markets” are dozens of highly fragmented and highly complex markets that are close to impossible to manage for the above-mentioned companies. If you’re running Spotify, you have better things to do than talk to 40 different markets, organize local teams (which comes at a high cost), and set up payment operations and local banking relationships.

In the developed world, this is a solved problem, thanks to companies like Visa and Mastercard. When you tap a card, Visa smoothly routes the authorization across borders, converts the currency, and settles between banks that have no direct relationship with each other.

In most emerging markets, that network doesn’t exist. Most people don't pay with an international card. They pay with Pix in Brazil, UPI in India, a cash voucher at a corner shop, or a local-only card scheme like Nigeria's Verve or Egypt's Meeza. These systems were built to move local money domestically, not to have San Francisco-based tech giants collect money.

There's no global directory that knows how to route to them, no shared settlement layer, no built-in currency conversion. And even when someone does pay with a card, the money is often trapped. That's what happened to founder Sebastián Kanovich, who couldn't buy an NBA League Pass from Uruguay because his card kept getting rejected abroad.

The reason cards fail is worth understanding, because it likely doesn’t happen too often to most of us in the Western World. A card payment isn't like a withdrawal – it's a request that the customer's bank can refuse, and that happens all the time. A domestic card payment fails maybe 1 to 5% of the time; a cross-border one fails 15 to 25%. And most of those failures aren't for lack of money. The customer's bank sees a charge arriving from a foreign acquirer, in an unfamiliar pattern, and declines it "just in case." It would rather wrongly block a real payment than wrongly wave through a fraudulent one. Industry-wide, merchants lose somewhere between 1 and 2% of all revenue to these false declines.

And the fix can be embarrassingly simple in concept. If the same Spotify charge is processed through a local acquirer inside Brazil, so it reaches the customer's bank looking like a domestic transaction rather than a foreign one, the bank trusts it and approval rates go up dramatically. dLocal quotes up to 20 percentage points of uplift. Of course, this is only one way to solve the problem. It can be more complex.

dLocal’s value proposition is to offer one solution to solve the payments for every emerging market a merchant like Spotify wants to tap into. They have 4 services that enable all types of merchants to take cards, bank transfers, wallets, cash, etc., and pay merchants and customers – all through one API.

The company frames it as One dLocal – one API, one platform, one contract – sitting on top of four products. And I want to walk through them because, again, it’s not always as easy as in the example above, and that is exactly why dLocal’s value prop is important.

The first differentiation is between Pay-ins and Pay-outs. Pay-ins describe nothing more than the process of a merchant collecting money from a customer. Through a single integration, dLocal accepts 900-plus local payment methods – cards, bank transfers, wallets, cash vouchers, instant rails like Pix – in local currency, and settles the funds to the merchant. Pay-ins are about 70% of total volume.

Pay-outs are the reverse: the merchant sending money out to people in these markets. So when Uber pays a driver, that’s a pay-out. The advantage here is that dLocal enables the paid party to receive the cash in their preferred way. That could be a local bank account, but it could also be a wallet.

A mix of both is targeted by the so-called “For Platforms” product, which is built for marketplaces and gig platforms that are collecting from buyers and paying out to sellers at the same time. It offers split payments (for example, splitting a payment to Uber between the driver’s cut, Uber, local tax, and the tip), mass payouts (for example, a batch of payments to Amazon merchants), and reconciliation for users who are simultaneously payers and payees, across many countries through one integration. It's why Amazon, Temu, and the marketplaces are natural customers.

All of this is supported by dLocal’s Defense Suite. That’s the part that takes care of fraud scoring, chargeback and dispute handling, and the KYC and anti-money-laundering work required to move money across dozens of borders legally.

This is also where smart routing takes place. Smart Routing is the practice that ensures card payments actually go through. dLocal’s systems are trained to dynamically pick the path that’s most likely to get a given transaction approved. But when it doesn’t work on the first try, dLocal’s system retries the recoverable failures and leads them down a better path. This is especially important for a subscription business, where no one is present to fix the problem or even take notice when a payment fails.

We’ll talk about the potential threats in a minute, but I want to quickly walk you through the physical infrastructure and all the relationships it takes to condense this offering into one API. Because it’s not so much about the tech. The tech can be copied. But behind that API is roughly 40 countries’ worth of slow, physical, one-at-a-time work. You need a local legal entity in each market, the licenses to be allowed to touch money there, integrations into each country's specific rails, contracts with local banks, the tax and compliance handled, and the machinery to convert money and legally move it out. dLocal runs all of it with only around 1,000 people and spreads that fixed cost across every merchant. Each license alone can take many years.

Alright, let’s talk about the most-discussed threats for dLocal. There are four macro-threats worth mentioning.

The first is that a Visa-style global network (most likely Visa or MasterCard themself) emerges and replaces all other rails. I don’t believe that’s realistic given the trends of the last decade in almost all emerging markets. It’s not like credit cards don’t exist. They do, and they are growing fast. But I doubt they will take the same place as they did in the U.S. Brazil, India, Nigeria, and many more countries have built their own payment rails through their central banks that are pretty successful and expanding quickly. It generally seems like the markets will stay more fragmented when it comes to payment options.

The second threat is big merchants building global payment solutions in-house once the volume justifies it. This one sounds plausible until you look at the opportunity cost in both money invested and the time it would take. Cracking Argentina – the license, the local bank relationships, the capital-controls machinery – takes roughly the same years and lawyers whether you run $50 million or $5 billion through it. And then you'd do it 40 times and maintain it forever, re-solving it every time a central bank changes the rules (which happens much more often in emerging markets).

The third risk is about stablecoins. I had a long talk with Shawn even after we recorded our podcast episode, and I think it’s safe to say that Shawn is in the camp that payments are a race to the bottom, in part because of stablecoins and crypto and their ability to reduce friction and costs. And emerging markets are exactly where stablecoins get used – Argentina alone did something like $34 billion of stablecoin volume in a year, most of it to get around the very capital controls dLocal navigates.

And yet, I just don’t see that happen. For the record, I do believe stablecoins and the blockchain will become more important over time. However, I believe the companies dominating payments will be the main beneficiaries of that. Stablecoins fix the part of the job that was never that hard to begin with (just more expensive) – moving money across the border. They don’t solve the last-mile problem: converting that stablecoin into pesos, in a local bank account, under local rules, with the tax and compliance handled.

There's even data on this. In African corridors, the raw transfer can cost well under 1%, but the all-in cost, once you add the local payout and compliance, climbs right back toward 7-8%. The savings get absorbed by the last mile, and the last mile is dLocal’s business just as it is Remitly’s (a remittance company I covered a while ago). Stablecoins are a cheaper bottom layer, replacing correspondent banking, but that only makes dLocal’s underlying operation cheaper. It doesn’t replace it. Of course, this is just my current take on this problem. I’m not a blockchain expert, so it’s fair to disagree.

And that brings us to the last and most important threat – the real-time rails themselves and, more importantly, less fragmentation overall. On the show, I gave the example of Pix Automático, which enables the recurring subscription billing that used to require dLocal's own SmartPix product, undercutting one of its conversion tools directly. This is just one feature, but in the long run, the biggest threat is that Pix, UPI, and co. keep growing and expanding while shipping new features that materially simplify payments.

As part of this risk, you might also mention that emerging markets might remain very concentrated. Right now, Latin America is 80% of revenue and the big three – Brazil (19%), Mexico (17%), and Argentina (15%) – make up over 50% of that. Again, the less fragmented the market, the easier it is for dLocal’s customers to build in-house or find other solutions.

Suddenly you don’t need 40 local teams, but just one in the top three markets. That costs less time and is much easier to maintain.

But I’m not too worried. If anything, I expect the concentration on the big three to decline in the long run, and despite that concentration right now, merchants choose to go with dLocal instead of doing it on their own. We’ve talked plenty about how difficult it is for Western players to succeed in emerging markets in our episode on Mercado Libre (Amazon being the Western player that competed with it).

The elephant in the room is the take rate. Whenever the argument is made that payments is a race to the bottom, declining take rates are used as evidence. And dLocal’s take rate has certainly come down quite a bit. But it is important to understand why that is and look at the bigger picture of the fundamentals.

It’s one thing to look at how much of a dollar dLocal keeps that’s flowing through its rails, which is what the take rate is doing, but what matters more, especially in the expansion phase, is how much money dLocal actually makes and whether there’s operating leverage after the gross dollars earned. One thing you can look at is the ratio of adjusted EBITDA to gross profit (you can also take another profit metric if you categorically refuse to use EBITDA; I used EBIT below).

It’s basically a measure of operating leverage, and it keeps increasing. So why is the take rate declining so quickly in the first place? Because dLocal is playing the volume game. If you onboard a merchant like Amazon, they have negotiation power due to the volume they bring. dLocal’s thesis is to onboard them despite that and accept a lower take rate in return for billion-dollar TPV growth and the potential to monetize them through additional products later on.

And it’s certainly working. TPV is growing 70%+; revenues grow 50%+, gross profit is growing close to 40%, and operating profits grow even faster.
I give you all of these numbers because they beautifully showcase the V-shape that dLocal’s economics resemble.

TPV is growing the fastest, essentially being the starting point of the V. Then gross profit is growing slower due to the take rate decline. That is the bottom of the V, and then growth accelerates again when you go down the income statement, since operating leverage makes profits outgrow gross profit. As long as that’s the case and TPV is growing the way it is, the take rate is a non-problem. I gotta admit, though, TPV can not grow at these rates forever. dLocal needs to show its ability to monetize its customers through upselling value-added services eventually.

Similar to how Amazon was said to dominate e-commerce in Brazil eventually, which never happened, dLocal might be threatened by Western players like Stripe and Adyen, which are bigger, better funded, and technically superb.

Interestingly, Adyen has been active in Brazil since 2010. So it’s not a new entrant at all. They couldn’t stop dLocal from growing, though, because they’re not really playing the same game. Stripe and Adyen are excellent in the developed world, where the payment infrastructure (and primarily credit card rails) already exist and you just need software on top.

Their entire model assumes the global card network did the cross-border work for them. Forty fragmented, capital-controlled, heavily regulated emerging markets are the opposite of what they're good at, and the payoff is small next to their core business. So the common setup is a merchant running Stripe or Adyen globally and bolting dLocal onto the emerging-market leg.

The real fight is with the regional specialists – EBANX, Rapyd, PayU, Flutterwave – who make the same promise dLocal makes and are increasingly pushing out of their home regions. In any single country, a specialist can beat dLocal on local depth. But across 40 countries under one contract, dLocal is still by far the best partner. Coming back to my argument that it’s important in the long run that markets outside of the big three gain in importance to make the value prop of delivering 40+ markets more attractive.

Currently, dLocal has no problem at all with retaining customers.

A couple of weeks ago I covered Kaspi. The thing that they have in common with dLocal is that both companies were the victim of a short attack. I think we can keep this short, though, since none of the important points turned out to be true.

The claims were that TPV was overstated, the take rate too high to be real, that founders had commingled merchant money, and that insiders sold roughly $1 billion after the IPO lockup.

Candidly, little of it survived. An independent board review with outside investigators verified merchant cash and corporate cash sat in separate accounts matching the bank statements. The take-rate claim mostly compared dLocal to Stripe, which is an unfair comparison given that Stripe operates in a totally different market and with a totally different strategy. Also, looking at the take rate today, there are not many people left who would say it’s abnormally high…

And I’m not sure I’d blame insiders selling stock when it trades at a 300x multiple in 2021. I'd have sold some too. Now we’re three years in, the business just keeps growing and becoming more profitable, auditors keep signing, and dividends are paid regularly. Also, not a single merchant left dLocal after the short report back then. That shows some trust, if you ask me. I’m quite confident they have done their due diligence.

The short report had some fair points, though, and I actually believe it made the company much stronger. Some of the accounting was overly complex, and they might have been overexposed to some high-risk business.

Which is why the management decided to bring in someone new with enough expertise to fix that – Pedro Arnt.

Pedro Arnt has spent 25 years at Mercado Libre. While he’s not a founder, he comes as close as it gets. For 12 years of that tenure, he served as the company’s CFO and Executive Vice President, which is why he was the perfect man for the job. And the fact that he left Meli’s CFO position to join dLocal is, in my opinion, a huge show of confidence.

He started as Co-CEO alongside Sebastián Kanovich, but he’s now the sole CEO of the business while Sebastián Kanovich transitioned to the board. And while Arnt only owns about 0.8% of the business at the moment, which is not unusual since he just came in and had no founding stake, the insider ownership overall is massive – 33% of the company is owned by the founder and management team.

For context, I bought dLocal about two years ago for my personal portfolio. Back then, I bought it at a price of $8-$9 but have since averaged up to $11. That’s where I see dLocal as massively mispriced. Today, the stock is trading at ~$14 to $15 – still on the cheaper end, but with more potential for volatility.

In my base case, I have TPV grow 38% a year through 2028 and then decelerate to 20% until 2031. That’s a heavy haircut off the 50-60% dLocal is guiding for 2026 and the ~88% ten-year record. However, dLocal will have a harder time growing as it scales. The take rate keeps falling from about 1% toward 0.69%. Against that, operating leverage does its work with the EBITDA-to-gross-profit ratio climbing about two points a year.

What we’ll see then is the V-dynamic described above – TPV growing the fastest, gross profit the slowest, and profits in between.

Put a multiple of about 14x on that, discount it back, and fair value lands around $23. With a margin of safety of 20%, you land at $18. From today's $14, that's roughly a 17% annual return on price and dividends. And I consider these assumptions to be quite conservative.

In my bear and bull cases, I primarily adjust the take rate and operating leverage assumptions. If you wanna check them out in detail, you can do so through the link above.

Shawn is obviously not a big fan of dLocal given it’s a payments company. But I think the quality of the fundamentals convinced him not to veto me on establishing a starter position of 2%. dLocal is highly volatile. Before considering making a bigger position, I would like to see a major drop first. Obviously, I wouldn’t be unhappy if we see the weight grow through stock price depreciation either.

To listen to our discussion of DLO, or for more company Deep Dives, check out our podcast here.

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