In a hat tip to the old political axiom, when it comes to newly listed shares of LatAm payments platform dLocal, it appears that Wall Street investors now think all payments are local too.
This, as shares of dLocal surged nearly 50 percent in early trading on its inaugural day as public company.
In terms of the particulars of the offering, the payments firm, based in Uruguay, offered 29.4 million shares on Thursday (June 3) — and where the initial offering range had been $16 to $18, the stock was trading at $30.60. The dLocal launch comes on the heels of other IPOs such as Flywire and Paymentus, which started trading in 2021, too.
Drilling into the company’s SEC filings, dLocal bills itself as “enabl[ing] global merchants to connect seamlessly with billions of emerging market users.” The data in the filing state that dLocal works with more than 330 merchants, enabling more than 600 local payment methods (including, in some cases, financial institutions) across 29 countries in Latin America, Africa and the Middle East and Asia. The merchant roster, said dLocal, includes DiDi, Spotify, Amazon and Microsoft, among others.
“Through one direct API, one technology platform, and one contract, which we collectively refer to as the One dLocal model, we enable global enterprise merchants to get paid (pay-in) and to make payments (pay-out) online in a safe and efficient manner,” dLocal said, enabling cross-border and local-to-local transactions across 2 billion customers.
“Only a few years back they would have said they don’t feel confident enough,” he said of those merchants. “But for instance, Nigeria has to be our fastest-growing market. And to be completely honest, we didn’t see that coming two years ago.” High mobile phone penetration and growing adoption of online commerce have helped spur an embrace of a range of different payment methods.
The company’s TPV has been growing at a 97 percent compound annual growth rate, according to the document, to a recent $2 billion in 2020, up from $136 million in 2016. In terms of market opportunity, dLocal cited the International Monetary Fund, which said that as of recently, emerging markets represented 57 percent of aggregate global GDP (measured on a per-person basis). In other research, dLocal said (via AMI) there is an estimated US$1.2 trillion in total eCommerce pay-in and pay-out volume in the countries in which the company operates.
For the three months that ended in March 2021, revenues grew by more than 123 percent year on year to $40.3 million, and operating profit grew by a multiple of 13x to $18.8 million. On a full-year basis, in 2020, the company posted sales of $104.1 million, up from $55 million in 2019, while operating profit grew to $31 million from $17.6 million in 2019.
In detailing risk factors, the company stated, “We compete in markets for payment services characterized by vigorous competition. We compete with existing providers of digital payment infrastructure solutions to facilitate pay-in and pay-out payment transactions, including both cross-border and local-to-local payment transactions. We compete with large companies, some of them with a substantially larger scale and higher investment capacity than us.”
And, in reference to the challenges of managing scale and growth (we note that these are general and broadly defined challenges), dLocal said that “our revenues depend on prompt and accurate transaction processes. Currently, all our transactions are manually exported from a transaction server and registered to our accounting system, which may subject our accounting system to errors and possible mismatches between customer’s payment and our confirmation of such payment to our merchant, which may give rise to claims or allegations that could harm our business.
“Our failure to grow our transaction-processing capabilities to accommodate the increasing number of transactions that are processed on our platform could harm our business,” the filing noted. There’s also the fact that this heady growth has been underpinned by a relatively small number of customers. The firm said that its top 10 customers, measured in terms of revenues, represented approximately 62 percent of top line in the most recent period.