Accelerating Digitalization Will Unlock Untapped Emerging Markets

Key Takeaways

• Expansion into emerging markets and deepening partnerships with global merchants are set to drive sustained revenue growth and greater operational leverage.
  
• Investments in technology and compliance, paired with enhanced regulatory positioning, are expected to boost resilience, margin improvement, and long-term profitability.
  
• Margin and profit pressures persist as DLocal faces pricing, currency, regulatory, and competitive headwinds amid rising costs and complex expansion in emerging markets.

Catalysts

Operates a payment processing platform worldwide.

• DLocal’s rapid geographic expansion into untapped emerging and frontier markets is expected to unlock significant new sources of transaction volume as digital payments and e-commerce penetration accelerate across Africa, Asia, and Latin America, directly supporting sustained top-line revenue and TPV growth.
  
• The accelerating digitalization of consumers and businesses in emerging markets, paired with the ongoing shift to digital financial services and e-commerce, is projected to fuel robust, multi-year increases in cross-border and local-to-local transaction volumes on DLocal’s platform, reinforcing bullish outlooks for revenue and gross profit expansion.
  
• Deepening relationships with global Tier 0 merchants and the onboarding of new, large-scale merchants—especially those requiring local payment methods and compliant, cross-border solutions—are likely to drive continued scale advantages, operational leverage, and high TPV retention, supporting margin improvement over the long term.
  
• Ongoing investments in proprietary technology, compliance infrastructure, and the continuous rollout of new products (such as stablecoins, APMs, and orchestration tools) are expected to create new revenue streams, reduce fraud and regulatory costs, and enhance DLocal’s trusted position with international enterprise clients, underpinning more stable earnings and higher net margins.
  
• Expansion of DLocal’s licensing and regulatory footprint—including recent authorizations from key oversight bodies like the FCA—positions the company to gain market share as regulatory requirements in cross-border payments tighten globally, enabling greater customer retention, improved pricing power, and enhanced resilience in the face of competitive pressures, all of which are likely to positively impact long-term revenue and profitability.

DLocal Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on DLocal compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming DLocal's revenue will grow by 34.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 19.2% today to 19.8% in 3 years time.
• The bullish analysts expect earnings to reach $374.4 million (and earnings per share of $1.24) by about July 2028, up from $149.3 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 bullish analyst cohort, the company would need to trade at a PE ratio of 17.7x on those 2028 earnings, down from 20.6x today. This future PE is greater than the current PE for the US Diversified Financial industry at 17.5x.
• Analysts expect the number of shares outstanding to decline by 0.55% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.58%, as per the Simply Wall St company report.

DLocal Future Earnings Per Share Growth

Risks

• DLocal is experiencing sustained take rate compression, largely driven by winning and expanding contracts with large, global Tier 0 merchants who negotiate lower pricing tiers as volumes increase, which can lead to net margin and gross profit pressure over time if volume growth does not fully offset pricing declines.
  
• The company is exposed to significant currency volatility and macroeconomic instability in emerging markets, such as the naira devaluation in Nigeria and other FX headwinds, which have already adversely impacted reported revenue and could unpredictably affect both revenue and net earnings in the future.
  
• Intensifying competition from established global payment players and local fintechs is creating pricing pressures, particularly in key markets like Brazil and Mexico, which may cause further margin erosion and potentially limit revenue growth as the industry becomes increasingly commoditized.
  
• Increasing operating expenses, especially heavy ongoing investment in product development, IT capabilities, and the expansion of regulatory license portfolios, are outpacing gross profit growth, which poses a risk to maintaining operating leverage and could constrain net income and adjusted EBITDA if not carefully managed.
  
• Growing global regulatory scrutiny and the need to continually obtain new licenses, as well as the tightening of cross-border payment, KYC, and AML requirements, are raising compliance costs and operational complexity, which could hinder DLocal’s ability to scale efficiently and ultimately impact profitability and revenue growth.

Valuation

• The assumed bullish price target for DLocal is $18.0, which is the highest 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 bullish 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 $9.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $1.9 billion, earnings will come to $374.4 million, and it would be trading on a PE ratio of 17.7x, assuming you use a discount rate of 9.6%.
• Given the current share price of $10.77, the bullish analyst price target of $18.0 is 40.2% higher.
• 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.