Smart investors have their eyes on two specific opportunities – two areas that are expected to grow rapidly, both short-term and long-term. The first is digital payment solutions. The use of cash has experienced a gradual decline as e-commerce transactions ramp up, and every one of those transactions requires a source of electronic payment.
That’s where companies like Coinbase (COIN), dlocal (DLO), Square (SQ), and PayPal (PYPL) come in. They facilitate payments, which in turn make online purchases possible for anyone with internet access. But will e-commerce market share continue to increase?
E-Commerce Market Share
For now, developed economies are leading the way in online sales. For example, in 2018, 14.3 percent of all retail sales in the United States were made online. That figure increased to 15.8 percent in 2019, and a remarkable 21.3 percent in 2020.
That last big jump is thought to be associated with the COVID-19 pandemic, but most industry experts agree e-commerce is here to stay. It is unlikely e-commerce will lose ground once the pandemic passes, which has investors looking at adding high-growth digital payment companies to their portfolios.
FinTech for Emerging Economies
The second big investment opportunity is in developing economies – particularly Latin American countries. Over the past ten years, many of these nations have achieved substantial reductions in poverty levels, and there is a growing middle class that is ready to participate in the global economy.
A variety of companies are targeting Latin America for their expansion plans – particularly tech and e-commerce ventures. That’s because the Latin American population of more than 600 million is on the cusp of fully integrating digital technology into daily life, now that nearly everyone finally has internet access through mobile devices.
Netflix (NFLX) and IBM (IBM) have strategies to increase service to Latin American consumers, and Amazon (AMZN) has a full-fledged Latin American operation that gets bigger every year. These three are just the tip of the iceberg.
As digital sales and services gain a stronger foothold in Latin America, FinTech startups are stepping in to smooth the transition. One of the biggest winners is Uruguay’s dLocal – a digital payment company that takes a unique approach to online payment solutions.
What Does dLocal Do?
In 2016, the founders of dLocal saw a growing need for a specialized solution that would blend the digital payment standards set by developed economies with the limitations of economies still in development.
The company’s management describe dLocal as “40% cross-border payments facilitator, 40% technology company and 40% emerging-markets localization experts.”
They go on to say, “We are 120% dedicated to delivering a flexible, all-encompassing payments solution that unlocks new revenues and maximizes reach in growth markets.”
While it makes its home in Uruguay, dLocal services aren’t limited to Latin America. The company has an active client base in a variety of rapidly emerging economies in the Middle East, North Africa, and the Asia Pacific region.
In a nutshell, dLocal makes it possible for buyers and sellers in underserved countries to perform digital transactions across international borders using local currency. There is a full suite of related products and services, including cards that can be locally branded, e-wallets, direct debits, bank transfers, and direct cash payments.
The increased convenience of accessing digital payments coupled with universal internet access allows merchants and consumers who were once cut off from the global marketplace to buy and sell with ease.
dLocal Market Share
For the moment, dLocal market share doesn’t even crack the top ten. Companies like PayPal (PYPL), Stripe, and Apple Pay have a strong hold in the digital payments space, and dLocal is still edging its way in. However, that appears to be changing.
After gaining notoriety as Uruguay’s first “unicorn”, a term for privately-held startup companies valued at more than $1 billion, dLocal held its IPO on June 2, 2021. Investors have taken notice, and they appear enthusiastic about dLocal’s prospects.
Of course, there is heavy competition in the digital payments space, but dLocal has a unique approach that is expected to differentiate it from its peers.
One of the most compelling advantages dLocal has over competitors who hold large chunks of the market is that dLocal has basic no-fee account options available – a sure-fire way to ensure rapid adoption among its target consumer base.
dLocal Revenue Growth Rate
dLocal boasts an impressive list of merchant partners that includes Amazon, DiDi, Spotify (SPOT), Microsoft, MailChimp, and approximately 330 more.
As of June 2021, the company’s total market reach included two billion internet users, 29 countries, and more than 600 unique local payment methods.
The company reported a revenue growth rate of 88 percent in 2020 – a figure that rose to 124 percent for the first quarter of 2021.
It is also important to note that dLocal’s total payment volume (TPV) had a compound annual growth rate (CAGR) of 97 percent from 2016 to 2020 – and 92 percent of TPV is generated by merchants with $6 million or more in volume each year. That makes a strong case for continued revenue growth over the next 12 – 24 months.
Will dLocal Profits Grow?
The beauty of this type of tech startup is that there is a large margin – in this case, more than 40 percent. Such platforms scale relatively easily, so increased revenue doesn’t necessarily lead to a proportional increase in expenses.
A majority of analysts believe dLocal profits will grow rapidly, both short-term and long-term. The company has a high client retention rate, and it has barely scratched the surface of its addressable market.
Current merchants and e-commerce platforms already using dLocal are likely to bring in more revenue each year as their own volume increases.
Meanwhile, dLocal has just started to connect with merchants in Latin America, much less those on other continents. The addition of new accounts will push profits up quarter after quarter.
What Could Go Wrong with dLocal?
Outside of the heavy competition among digital payment services, industry analysts note two areas of concern with dLocal. First, dLocal is dependent on its ten largest clients, who bring in 60 percent of the company’s top-line revenue. The loss of one or more of these major customers could have a dramatic impact on profitability.
Second, 90 percent of the company’s revenue currently comes from the Latin American market, which is notoriously volatile. The ongoing push to expand into other parts of the world will help to reduce this risk.
dLocal Stock Price Prediction
In its first two months as a publicly-traded company, dLocal share prices have grown more than 50 percent.
Analysts’ early dLocal stock price prediction averaged about $51 per share within 12 months of the IPO.
The company has already hit that target, which indicates it is possible – even likely – that dLocal will meet the most optimistic stock price prediction of $72 per share by the time it hits its first anniversary on the NASDAQ.
The June 2021 IPO valued dLocal at $6.06 billion, with 29.4 million shares priced at $21 each. By late July, the company achieved a market cap of $15.24 billion.
That’s good news for investors who bought in early, and it leaves plenty of opportunity for those who choose to buy dLocal stock now.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.