Write-up on dLocal ($DLO)
I was motivated to look at dLocal ($DLO) because, in general terms, I think payment service providers have very attractive business models and a credible structural tailwind supporting long-term growth in the form of the ongoing global adoption of digital payment methods. I also thought that dLocal has an interesting angle of differentiation as being focused exclusively on serving global merchants doing business in emerging markets.

I believe dLocal can continue to grow revenue at very high rates over the next eight years, starting at 65% year-over-year growth in 2022 and declining to 20% by 2030. High operating leverage means this growth translates to high margins (~65% EBITDA margin on net revenue), while capital efficiency drives free cash flow conversion of 70-80%. dLocal pursues a “land-and-expand” model similar to most SaaS companies, making net revenue retention one of the key metrics to monitor. Their approach to driving NRR expansion is unique, however, as they pursue this not only by trying to penetrate customer organizations deeper via add-on products and closer relationships, but also by partnering with global merchants across an increasing number of emerging market countries. dLocal serves each of their top 10 merchants in an average of 9 countries and this has increased from an average of 4 countries in 2018. Such a dynamic means that rising NRR for dLocal not only means revenue growth, but also means customer relationships that are more defensible, helping to insulate their business from rising competition from global competitors like Adyen and Stripe. Customer churn has historically been less than 1%.

Unfortunately, none of this is a secret and, even after selling off 61% over the past year, dLocal is still trading at a pretty full valuation. So far this year, dLocal has traded more like a growth factor play than anything else and has moved more or less in line with the Nasdaq. In the short-term, while macroeconomic uncertainty persists, I would expect that correlation to continue. There is also a potential headwind in the form of economic pressure on emerging economies from high US interest rates, a strong USD, and commodity price inflation (although the impact of the latter depends on the country). Over the medium and long term, I would expect fundamentals to reassert themselves and believe dLocal can deliver strong levels of free cash flow and very high returns on invested capital.

The problem is that continued rate hikes are eating into the discounted value of those cash flows (same story for lots of growth stocks, hence the correlation with the Nasdaq). My valuation model (which uses a 3.5% risk-free rate) implies only small upside from the current price. This makes it hard for me to want to pile into dLocal at the moment, no matter how much I like the company. The question is whether the quality of the company and the strength of its growth story warrant a small initial position, despite my reservations over valuation. This is more a judgement call than anything else, but I think they do. I think it unlikely that a company of dLocal’s quality would ever become a screaming buy on valuation grounds. In addition, when the macroeconomic parameters change, they will change quickly and I would not want to miss out because I am on the sidelines. By starting with a small initial position I am also giving myself the option to average down should the shares sell off more.

Follow the link below to read the full investment memo:

With your thoughts so far I think it’s really prudent to start off with a small position and gradually average down as you did.

I am aware that @ntfinvesting also holds a position in $DLO so I think he would enjoy reading your analysis :)
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Beaver Capital's avatar
$98.6m follower assets
May'22 - Growth Portfolio Update
Sells: None

I am confident in my portfolio right now, but I am doing some research on my watchlist: $DLO $GLBE $SNOW $DDOG $NU $S $APPS

YTD return: -30.9%
  • Another tough month for growth, but saw some rallys near end of May which was encouraging. Currently have some cash ready to deploy so I will continue to add on weakness.
  • Stay positive out there friends!

*can't link portfolio on CS currently due to not being in US.
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Top Losers Today @ 11am
Visit highsandlows.substack.com to see more
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April 2022 Bloodbath - Names Down >30% Since April 1
April 2022 was one of the worst market months of all time. In fact, it was the worst since October 2008. Here are 100 stocks down >30% since April 1:

Visit highsandlows.substack.com
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4 Additions and 1 New Buy
I added to $ETSY, $ZM, $CPNG, and $PYPL today while opening a tiny watchlist position in $DLO.

These four are all part of my core holdings that I am trying to build up, so today's lowered prices were a good time to add.

Meanwhile, I know very little about dLocal but have seen a few investors I respect talking about it and its dollar-based net retention of 198% that I needed to watchlist it.

I buy tiny watchlist positions in anything that fascinates me to psychologically put skin some skin in the game, remove FOMO to a certain degree, and make sure I don't forget about them.
This is a great strategy to have skin in the game but still minimize risk. I can see from your portfolio that you often make watchlist positions <1% in terms of position size.

At what point does it get upgraded from a watchlist position to a regular position, what has to happen?
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Alberto Wallis's avatar
$22.8m follower assets
D-Local $DLO Earnings Call Highlights
D-Local is off to another strong day following its outstanding Q4 results on Monday. The following snippets from the earnings call are a testament to the strong execution of this team.
Outstanding growth and retention:
  • "In 2021, total processed volume surpassed the $6 billion threshold. We have almost tripled our TPV, increasing by 193% over prior year 2020. If we compare our TPV in 2021 versus 3 years back, we have increased it by 11x. Revenues for the year reached $244 million, 134% increase over prior year 2020. If we compare our revenues in 2021 with 2018, we have increased it by an impressive 7x. We reached an all-time high NRR of 219% in 2021 and 198% in the fourth quarter as we grew wallet share with our existing merchants and had minimal churn of merchants."
Strong margins:
  • "Adjusted EBITDA for the year 2021 grew 136% year-over-year to $99 million. We posted a strong adjusted EBITDA margin of 41% during the full year 2021. This was comparable to the 40% we posted in the full year 2020."
Geographic diversification:
  • "For the full year 2021, we've added 9 countries to our network, bringing the total number of countries which we make our service available to 35 compared to 26 in 2020."

This company seems really strong and a great investment, however, I'd love to hear bear cases. If you have one, please comment.
Alberto Wallis's avatar
$22.8m follower assets
Upcoming Earnings Calendar! (March 14th - 18th)
Earnings season is slowing down, but there are still several very interesting companies reporting next week.

  • $DLO - This company is really interesting. Growing quickly and profitably (28% net profit margin last quarter) while solving a real pain-point for companies.
  • $GTLB - Don't know much about this company, but I've seen a lot of people commenting on it lately so I'll keep an eye out.
  • $S - Extremely expensive cybersecurity stock.
  • $FDX - Not interested in investing in the business, but very interested in their outlook for the supply chain and the impact of higher energy costs.
  • $LEN - Homebuilder. Let's see what their comments are on the supply chain + demand for housing in the US.

What company are you interested in?

If you'd like an easier way to track earnings dates, you can automatically sync your portfolio's earning dates to your personal calendar with just a couple of clicks here.





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