TIP834: DLocal (DLO): Multibagger Potential with Decade-Long Runway w/ Daniel Mahncke & Shawn O’Malley

DLocal is a B2B payments company spun out of AstroPay around 2016 that solves a structural problem in emerging markets: local payment rails such as Brazil's PIX, India's UPI, and Nigeria's VARF are domestic-only systems that cannot convert currencies or move money across borders, causing cross-border card decline rates above 50 percent. DLocal built a single API giving global merchants access to more than 600 local payment integrations across 60-plus markets without requiring each merchant to obtain local licenses, hire local teams, or manage separate tax and banking systems in every country. Customers include Amazon, Meta, Netflix, Uber, Alibaba, and Pinduoduo. For most large US companies, emerging markets represent five percent or less of total revenue, making independent local infrastructure not worth the cost, which is the core reason merchants pay DLocal a fee rather than build in-house.

Pedro Arndt, who served as MercadoLibre's CFO for roughly 24 years before becoming DLocal's CEO, described the company as probably the single most precise proxy for how the Magnificent Seven and most of the world's largest digital companies are performing across Latin America, Africa, the Middle East, and Asia. Daniel Mahncke frames the investment as a bet on two simultaneous trends: the digitalization of payments in emerging markets and the continued expansion of global tech companies into those regions. Arndt owns approximately 0.8 percent of DLocal despite joining only three and a half years ago, and founders plus management collectively own roughly 33 percent of the company.

Total payment volume reached approximately 40 billion dollars last year, up 60 percent year over year, with a compound annual growth rate since 2019 of nearly 80 percent. Latin America accounts for roughly 80 percent of total revenue, with Brazil, Argentina, and Mexico together making up about half of company-wide revenue. The top 10 customers account for 62 percent of revenue, and two individual merchants made up 10 percent of total revenue in 2024, which Mahncke identifies as a significant risk. Net revenue retention dropped from 150 percent in 2023 to 113 percent in 2024 before recovering to 145 percent in 2025 and remaining above 140 percent for four consecutive quarters into 2026. The average number of countries served per top 50 merchant grew over 40 percent year over year and the average number of payment methods grew 50 percent, supporting that retention figure.

The gross take rate declined from 2.9 percent in 2020 to 0.9 percent today. Arndt argues this reflects a deliberate strategy of offering discounts to onboard maximum volume through large merchants rather than competitive pressure. Stig Brodersen notes that a large portion of revenue is pass-through costs to local acquirers and card networks, so net profits can grow faster than gross profits through operating leverage even as the take rate falls. Shawn O'Malley draws a parallel to Nick Sleep's scale economies shared concept, where lower cost to serve is passed on to merchants rather than captured as margin, similar to how Wise operates. The core bear case is that if TPV growth eventually slows and the take rate cannot recover, DLocal is left with a low take rate and much less growth. Arndt has predicted market consolidation will eventually allow DLocal to transition from price taker to price influencer.

DLocal's 38 regulatory licenses, with roughly 12 to 15 still in process, represent a meaningful barrier to entry because obtaining them can take years. Adyen has operated in Brazil for about a decade yet has not won the market, which Mahncke attributes to insufficient investment priority rather than inability, and he notes Adyen and Stripe face structural margin pressure if they invest heavily in emerging markets given their currently high margins. DLocal trades at approximately 15 times earnings versus Adyen at approximately 25 times earnings.

Mahncke's base case assumes TPV growth of approximately 38 percent through 2028 decelerating to around 20 percent thereafter, which is conservative relative to DLocal's own 2026 guidance of 60 percent TPV growth. He assumes a gross profit CAGR of 19 to 20 percent with net income compounding one to two percentage points faster due to operating leverage, producing a base case expected return of approximately 22 percent using a low teens exit multiple and a 20 percent margin of safety. A new 300 million dollar buyback program representing roughly 7 to 8 percent of the company was authorized around March of this year, and the dividend yields approximately 3 to 4 percent set at 30 percent of free cash flow. Mahncke's personal average cost is close to 10 dollars per share and DLocal was trading at approximately 14 to 15 dollars at the time of recording. O'Malley plans to initiate a 2 percent position alongside an existing 2 percent position in Wise. The bear case, which Mahncke acknowledges could quickly halve the stock, involves margins declining rather than expanding, and Brodersen believes the most likely failure mode would be an inability to monetize rather than lost volume.