DLocal’s SWOT analysis: cross-border payment stock eyes african expansion

DLocal Limited (NASDAQ:DLO), a cross-border payment platform connecting global merchants with customers in emerging markets, has been making strategic moves to expand its footprint and enhance its service offerings. With a market capitalization of $2.8 billion and demonstrating strong profitability with a 29% return on equity, the company has caught investors’ attention. As DLocal navigates through a period of growth and transformation, investors and analysts are closely watching its performance and future prospects. According to InvestingPro analysis, the company currently appears undervalued, suggesting potential upside for investors.

Company Overview and Recent Performance

DLocal operates an asset-light, scalable technology platform that facilitates cross-border payments across Africa, Asia, and Latin America. The company supports over 900 local payment methods in more than 40 countries, serving over 700 clients. This unique positioning in emerging markets provides DLocal with a competitive edge, as global competition is largely concentrated in developed markets.

In the first quarter of 2025, DLocal delivered a strong performance that exceeded market expectations. The company reported significant beats in Total (EPA:TTEF) Payment Volume (TPV) and revenue, generating $778.3 million in revenue over the last twelve months, with EBITDA reaching $163.23 million. The EBITDA/Gross Profit ratios surpassed consensus estimates by 6 percentage points, while maintaining a healthy gross profit margin of 40.7%. This impressive showing came despite ongoing investments in hiring and infrastructure, demonstrating the company’s ability to balance growth with operational efficiency.

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Strategic Expansion and Acquisitions

One of the most notable developments for DLocal has been its strategic move to acquire Kenya-based AZA Finance. This acquisition, announced in early June 2025, aims to expand DLocal’s presence beyond its core Latin American market and strengthen its position in Africa. While full details of the deal are yet to be disclosed, analysts view this move as a significant step in DLocal’s growth strategy.

The expansion into African markets is expected to open up new revenue streams for DLocal and diversify its geographical risk. However, it also presents challenges, including navigating different regulatory environments and managing the integration of the new acquisition.

Financial Outlook and Projections

Analysts project robust growth for DLocal in the coming years. Revenue estimates for 2025 and 2026 stand at $945 million and $1,162 million, respectively. Adjusted EBITDA is expected to reach $233 million in 2025 and $292 million in 2026. Net income projections are equally promising, with $167 million forecasted for 2025 and $219 million for 2026.

The company’s earnings per share (EPS) estimates show a positive trend, with projections ranging from 0.50 to 0.74 for the next two fiscal years, depending on the analyst firm. This growth trajectory is supported by DLocal’s continued expansion of Total Payment Volume, sustained foreign exchange spreads supporting the take rate, and expected improvements in operating leverage.

Market Position and Competitive Landscape

DLocal’s focus on emerging markets sets it apart from many competitors who primarily target developed economies. This positioning allows the company to capitalize on the growing demand for cross-border payment solutions in regions with rapidly evolving digital economies.

The recent acquisition of AZA Finance is expected to enhance DLocal’s competitive position in Africa, a market with significant growth potential. However, the company will need to navigate the challenges of operating in diverse regulatory environments and managing currency risks across multiple countries.

Future Outlook and Potential Risks

Looking ahead, DLocal’s growth strategy centers on expanding its geographical footprint, enhancing its product offerings, and improving operational efficiency. The company’s strong financial health is evidenced by its impressive Altman Z-Score of 8.99 and Piotroski Score of 7, indicating robust financial stability. While the company plans to distribute 30% of its free cash flow annually as dividends starting in 2026, InvestingPro data shows it currently does not pay dividends. The company’s ability to cover interest payments with its cash flows suggests strong financial management, making it potentially attractive for both growth and future income-focused investors.

However, DLocal faces several risks that could impact its future performance. These include volatility in emerging markets, potential underperformance in TPV expansion, lower structural take rates, and regulatory and compliance challenges across its operating regions.

Bear Case

How might emerging market volatility impact DLocal’s growth?

DLocal’s focus on emerging markets exposes it to significant economic and political risks. Currency fluctuations, particularly in countries like Egypt and Argentina, could negatively impact the company’s gross profits. For instance, the end of currency controls and the collapse of official/parallel foreign exchange rates in these countries have already created challenging comparisons for DLocal in 2025. Continued volatility in key markets could lead to unpredictable revenue streams and potentially hinder the company’s ability to meet growth targets.

What challenges could DLocal face in integrating new acquisitions?

The acquisition of AZA Finance represents a significant step in DLocal’s expansion strategy, but it also comes with integration risks. Merging different corporate cultures, aligning technology platforms, and harmonizing business processes across diverse geographical regions can be complex and time-consuming. There’s also the risk of regulatory hurdles in new markets, which could delay or complicate the integration process. If not managed effectively, these challenges could lead to higher-than-expected costs and potentially dilute the expected benefits of the acquisition.

Bull Case

How could DLocal’s expansion into Africa drive long-term growth?

DLocal’s acquisition of AZA Finance positions the company to capitalize on the rapidly growing African digital payments market. Africa represents a significant opportunity due to its large unbanked population and increasing smartphone penetration. By leveraging AZA Finance’s local expertise and existing infrastructure, DLocal could quickly establish a strong foothold in key African markets. This expansion could not only diversify DLocal’s revenue streams but also provide access to a vast customer base, potentially driving substantial long-term growth and solidifying the company’s position as a leader in emerging market payment solutions.

What potential does DLocal have for margin improvement in the coming years?

Despite ongoing investments in hiring and infrastructure, DLocal has demonstrated strong margin performance, as evidenced by its Q1 2025 results. As the company scales its operations and leverages its asset-light business model, there’s potential for significant margin expansion. The increasing Total Payment Volume (TPV) and sustained foreign exchange spreads supporting the take rate could contribute to improved profitability. Additionally, as recent investments in technology and talent start to yield returns, DLocal may benefit from increased operational efficiency. The company’s focus on high-growth emerging markets also positions it to potentially achieve higher margins compared to competitors operating in more saturated developed markets.

SWOT Analysis

Strengths:

• Strong presence in emerging markets with limited global competition
• Asset-light, scalable technology platform
• Diverse payment methods and wide geographical coverage
• Robust financial performance with strong revenue and EBITDA growth

Weaknesses:

• Exposure to emerging market volatility and currency fluctuations
• Regulatory and compliance challenges across multiple jurisdictions
• Dependence on key markets for a significant portion of revenue

Opportunities:

• Expansion into African markets through AZA Finance acquisition
• Potential for new services like Buy Now Pay Later (BNPL)
• Increasing demand for cross-border payment solutions in emerging economies
• Dividend distribution plan starting in 2026 may attract income-focused investors

Threats:

• Intensifying competition in the global payments industry
• Regulatory changes in operating countries could impact business model
• Macroeconomic instability in key markets
• Integration risks associated with new acquisitions

Analysts Targets

• Barclays (LON:BARC): $12.00 (June 4th, 2025)
• Citi Research: $14.60 (May 27th, 2025)
• Barclays: $9.00 (May 15th, 2025)
• Barclays: $9.00 (May 1st, 2025)
• Barclays: $9.00 (March 26th, 2025)
• Barclays: $10.00 (January 17th, 2025)
• Barclays: $9.00 (December 19th, 2024)
• Barclays: $8.00 (November 15th, 2024)

DLocal Limited stands at a pivotal point in its growth trajectory, with its recent expansion into Africa and strong financial performance positioning it for potential long-term success. Trading at a P/E ratio of 24.5x and showing revenue growth of 11.6% over the last twelve months, the company demonstrates both growth potential and current profitability. However, the company must navigate the challenges of emerging market volatility and regulatory complexities to fully capitalize on its opportunities. Investors and analysts will be closely monitoring DLocal’s ability to execute its growth strategy and deliver on its financial projections in the coming years.

For comprehensive analysis of DLocal’s investment potential, including detailed Fair Value estimates and expert insights, visit InvestingPro. Access our full Pro Research Report, which provides deep-dive analysis of what really matters for smarter investment decisions.

This analysis is based on information available up to June 14, 2025.

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