DLocal (DLO) Q4 2025 Earnings Call Transcript

TPV reached $41.0B in 2025 (+60% YoY) and full-year revenue surpassed $1.0B, with Q4 revenue $338M (+65% YoY) and Q4 gross profit $116M; adjusted EBITDA was $78M and adjusted free cash flow was $191M (+110% YoY, 97% conversion). Management guides 2026 TPV growth of 50–60% and gross profit growth of 22.5–27.5%, and announced a $57M dividend (30% of prior-year FCF) plus a board-approved $300M Class A share repurchase program. Key positives include high retention (TPV retention 158%, net revenue retention 145%), AI-driven productivity (~7% headcount equivalent) and expanding product set (BNPL Fuse, stablecoin suite), while primary risks are FX volatility (Argentina) and concentration/execution risk from large merchant rollouts.

Analysis

DLocal’s platform economics create a structural moat: one integration that stitches local rails, FX liquidity and APMs drives non-linear benefits to conversion and unit economics as volume scales. That means incremental TPV growth should translate into disproportionately higher gross profit per incremental merchant once rollout friction is overcome, but only after by-market operational work is executed and annualized costs roll through.

The single largest near-term operational risk is execution concentration — a handful of large merchant rollouts and multi-country product launches simultaneously determine whether guidance beats or misses. FX pass-through mechanics in volatile markets are a second major swing factor; margin pressure from local funding costs can flip quickly and is likely to show up in quarterly results before improving as liquidity and hedging adapt.

The firm’s innovation bets (BNPL, stablecoin settlements, card‑present for digital-first merchants) are optionalities that change the margin mix over multiple years rather than this quarter; if adoption follows the early commercial signals, treasury and settlement services could become higher‑take offerings and shift revenue from low‑margin routing to higher FCF per dollar processed. Capital-return actions and high ROE compress free float and therefore amplify price moves on both upside catalysts and execution disappointments.

From a valuation standpoint the equity discounts execution and FX risk but prices in sustained TPV growth only partially; that creates asymmetric outcomes — a successful H2 execution path and product take‑rate expansion implies material upside, while merchant rollout slippage or concentrated client churn could produce steep near‑term drawdowns.

Key Decisions for Investors

• Core long (DLO, 12‑18 months): buy DLO equity sized 3–5% of portfolio. Rationale: asymmetric upside from scale + new product optionality; set tactical stop-loss at ~18% below entry and initial target +35–50% if H2 execution and license rollouts proceed.
• Defined‑risk options (DLO, 9–15 months): buy calendar call spread (long Jan‑2027 $7 call / short Jan‑2027 $10 call) to capture asymmetric upside while capping premium outlay. Use this if implied volatility is below its 1‑yr median; max loss = premium, potential ~2–3x return if shares rally into guidance re‑rate.
• Hedge / pair trade (long DLO / short PYPL, 12 months): establish 1:0.2 notional ratio to hedge developed‑market payments exposure and reduce beta to global macro. This reduces downside from broad fintech weakness while keeping directional upside to DLO’s EM share gains; trim if DLO buyback/float disclosure materially accelerates.
• Event hedge (protective puts, 3–6 months): if entering a sized long into the next quarter, buy OTM puts with 3–6 month expiry to protect against a missed merchant rollout or sudden EM FX shock. Accept premium as insurance given high client concentration risk in the short term.