Rising Tariffs And Digital Currencies Will Disrupt Global E-Commerce

Key Takeaways

• Rising protectionism, regulatory demands, and digital currency adoption threaten to lower transaction volumes and increase costs, eroding DLocal's growth and margins.
  
• Reliance on a few major clients and intensifying competition from larger payment processors and local fintechs risks destabilizing earnings and reducing pricing power.
  
• Strong growth fueled by digital payments expansion, disciplined cost control, product diversification, and improved governance positions DLocal for further profitability and increased investor confidence.

Catalysts

Operates a payment processing platform worldwide.

• The spread of government-imposed tariffs and rising protectionism in key emerging markets could sharply reduce cross-border e-commerce transaction volumes, directly curbing DLocal's top-line revenue growth over the coming years as global commerce becomes more fragmented and less borderless.
  
• Accelerating adoption of central bank digital currencies and state-backed wallets threatens to disintermediate third-party payment processors like DLocal, potentially reducing transaction volumes and undercutting revenue as government solutions gain user trust and scale.
  
• Increasing regulatory scrutiny and evolving compliance regimes, particularly around anti-money laundering for cross-border flows, will continue to add complexity and cost, depressing net margins as DLocal is forced to invest more heavily in legal, compliance and operational controls to remain in good standing across multiple jurisdictions.
  
• Concentration risk remains high, with growth disproportionately tied to a limited set of large global merchants and top geographies; a loss or slowdown from a few key clients or exposure to country-specific financial shocks could imperil both earnings stability and long-term revenue visibility.
  
• As large payment processors and local fintechs scale, competitive pressures will drive transaction fees lower amid rapidly advancing open banking and standardized APIs, leading to margin compression, service commoditization and the steady loss of DLocal's pricing power, ultimately dragging on both earnings and free cash flow.

DLocal Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on DLocal compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming DLocal's revenue will grow by 17.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 16.9% today to 20.6% in 3 years time.
• The bearish analysts expect earnings to reach $286.6 million (and earnings per share of $0.99) by about August 2028, up from $145.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 14.5x on those 2028 earnings, down from 31.5x today. This future PE is lower than the current PE for the US Diversified Financial industry at 16.0x.
• Analysts expect the number of shares outstanding to grow by 2.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.85%, as per the Simply Wall St company report.

DLocal Future Earnings Per Share Growth

Risks

• DLocal has demonstrated robust long-term growth in both revenue and transaction volumes, underpinned by secular trends in digital payments and e-commerce expansion across emerging markets, which could support continued increases in revenue and market share.
  
• The company's business model is showing increasing operating leverage, with enhanced efficiency from ongoing investment in technology and automation driving higher net margins and elevated free cash flow generation.
  
• DLocal is expanding into new geographies and products-such as SmartPix, Buy Now Pay Later integration, and stablecoin on-ramps and off-ramps-which can broaden its total addressable market and open new high-value revenue streams.
  
• Despite ongoing investment in innovation and regulatory/compliance infrastructure, DLocal has maintained disciplined cost management and posted five consecutive quarters of improvement in the adjusted EBITDA to gross profit ratio, supporting sustained profitability.
  
• Enhanced corporate governance actions, a transition to a more independent board, and the appointment of an experienced CFO from Visa and American Express should boost business resilience, investor confidence, and potentially lower risk premiums, all of which could positively impact earnings and share price over the long term.

Valuation

• The assumed bearish price target for DLocal is $10.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of DLocal's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $18.0, and the most bearish reporting a price target of just $10.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $1.4 billion, earnings will come to $286.6 million, and it would be trading on a PE ratio of 14.5x, assuming you use a discount rate of 9.8%.
  
• Given the current share price of $15.66, the bearish analyst price target of $10.0 is 56.6% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.