dLocal volumes rise 80% amid sale rumours in Q2 23

dLocal volumes rise 80% amid sale rumours in Q2 23

There was plenty of news surrounding dLocal’s earnings in Q2 23, as the Uruguayan payment processor appointed a new co-CEO while seeing continued growth in its core markets. The earnings call came after Bloomberg, citing sources close to the matter, reported the company could be on the lookout for a buyer. 

Revenues rose 59% to $161m on the back of 80% growth in total payment volumes (TPV) to $4.4bn – the highest TPV growth since Q1 22. The company’s adjusted EBITDA rose 36% to $52m, giving an EBITDA margin of 32% (solid, although this margin has steadily declined each quarter since 38% in Q2 22). 

On the back of its results, dLocal has reaffirmed its FY 2023 guidance for $620m-640m of revenue. The company remains confident that it can continue to drive towards the high end of its guidance, despite a macro environment and the devaluation of the naira in Nigeria – its largest African market.

dLocal’s share price rose slightly in the wake of the results, but remains significantly down compared to last year, when short seller Muddy Waters criticised dLocal’s Q3 earnings report.

dlocal maintains FY23 guidance after 59% revenue growth, dLocal full-year revenue and EBITDA margin, 2019-2022 and 2023E

Key revenue and profitability drivers for dLocal in Q2 23

Revenues rose across all regions, with the company’s core region of Latin America seeing a rise of 45% to $126.9m – this was driven by higher local-to-local volumes and significant strength in Brazil, the company’s original operating market, where revenues grew 99% to $41.2m. Existing merchants are still important for the company, delivering $149.9m (up from $101.2m last year), with new merchants adding $11.2m. Net revenue retention reached 148% in Q2. 

A significantly higher YoY rise was once again seen in Africa and Asia, which grew 152% to $34.3m. However, the company noted that the devaluation of the Nigerian naira – following the launch of a free-floating policy for the currency this June – had contributed to a 12% QoQ decline in Africa/Asia revenues compared to last quarter. 

Having said this, Nigeria revenues still grew 353% to $20.4m and remain the largest provider of revenues for dLocal in Africa. Co-CEO Sebastian Kanovich added that the depreciation of the naira would affect revenues but not the company’s gross profit, which rose 43% in Q2 23 to $70.8m – giving a gross profit margin of 44%. According to the company, this margin was helped by changes to dLocal’s merchant mix in Brazil, but offset by a higher share of pay-ins and local-to-local payment volumes, as well as lower revenue shares in Argentina.

It will be interesting to see how FX impacts dLocal and other processors’ revenue moving forward (see how this has impacted US-based companies here).

dLocal delivers revenue growth in core markets
dLocal quarterly revenues split by market, 2022-2023

Cross-border payments form a smaller part of dLocal’s volumes

Driving revenues was dLocal’s changing mix of volumes, with local-to-local volumes growing significantly faster than cross-border, driven by merchants providing ecommerce advertising and ride-hailing services. 

Cross-border TPV increased by 49% YoY to $2.2bn while local-to-local volumes rose by 128% to $2.2bn. Without rounding, local volumes now roughly account for almost half of total payment volumes handled by dLocal, with cross-border accounting for 51% (in Q2 22, cross-border accounted for 61%).

dLocal local-to-local volume share grows
dLocal quarterly volumes split by segment, 2020-2023

Of the TPV figure in Q2, $3.2bn (73%) was from pay-ins – money being sent to merchants – while the remaining $1.2bn (27%) was from pay-outs – merchant disbursements to other businesses. However, pay-outs grew by 114% YoY while pay-ins grew by 70%, again leading to a slight shift in the volume mix compared to last year. 

dlocal’s take rate in Q2 was approximately 3.68%; although down nearly 50 bps from Q2 22, it is still relatively high compared to some other processors in the industry. Similarly, dLocal’s revenue and volume growth remain high – however, it will be interesting to see whether dLocal does find a buyer, as this would continue the consolidation trend started by FIS’s sale of its Worldpay solution earlier this year.

How big is the cross-border payments market in Latin America?

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