IPO DLocal Limited: online payment service from Uruguay goes public | R Blog RU

Currently, any business is forced to provide an opportunity for its customers to purchase services or products of the company online. This is the modern reality, dictated by the level of penetration of financial technologies and the formation of user habits. The coronavirus pandemic has only accelerated these processes. If a few years ago, online payment services were mostly the prerogative of large and medium-sized companies, now even the smallest business is interested in accepting online payments from customers.

DLocal Limited is engaged in servicing and processing online payments through its own platform. Currently, the main markets for DLocal Limited are the emerging markets of Latin America, Asia and Africa. The company’s IPO will take place on June 2 on the NASDAQ exchange, and trading will begin the next day under the ticker DLO

DLocal Limited Business

DLocal Limited was founded in 2016 and is headquartered in Montevideo. CEO of the company Sebastian Kanovich has been managing it since its inception, and previously was managing director at AstroPay. The company considers it its mission to make the technologically complex process of paying for services on the Internet as simple and understandable as possible. Thanks to the “One dLocal” concept (one direct API, one platform and one contract), companies can accept payments, send payments and settle all over the world without having to manage separate processors for settlements, create numerous local organizations, and integrate multiple acquirers and payment methods. in every market.

DLocal Limited business

Thus, sellers get an easy and secure way to receive payment for their goods or services (pay-in and pay-out). As I wrote above, the company operates mainly in emerging markets, except for China. More than 2 billion Internet users from 29 countries of the world have become clients of the service.

DLocal Limited business

DLocal solutions allow you to process both cross-border payments and payments within the country. The platform can connect to more than 600 payment systems in various regions. Among the company’s partners, we see large multinational organizations such as Microsoft, Spotify, Amazon, Didi, Mailchimp, Wix, Wikimedia and Kuaishou.

DLocal Limited business

The technology patented by the company is flexible and easily scalable, which allows DLocal to form a specific product for each client, taking into account specific requests and wishes. Also, this feature allows the company to quickly capture new markets and compete with other market participants.

DLocal Limited has raised USD 60 million in previous funding rounds. The main investors are Andres Bzurovski Bay Izba, Aqua Crystal Investments, General Atlantic and Unsal Holdings.

Market and competitors

According to a study by Juniper Research, the market for cross-border online payments reached USD 27 trillion in 2020. By 2022, it could reach 35 trillion USD. Thus, the average annual growth rate of the market volume will be 30% in the near future. The largest share will be occupied by instant payments with a processing speed of less than 10 seconds. Blockchain-based payment services are also gaining popularity, but they need additional regulatory regulation.

As we can see, the development of the company in the market was very rapid.

DLocal Limited market

Among the competitors of the company, I can note:

Financial performance of DLocal Limited

DLocal Limited enters the placement being profitable. Let’s start the analysis of financial statements with revenue as an indicator of business growth. According to Form F-1 / A, sales for 2020 amounted to USD 104.14 million, an increase compared to 2019 by 88.35%. In the first quarter of 2021, revenue amounted to USD 40.26 million, which is 123.79% more than in the same period in 2020. Thus, at the end of the year, this figure may reach 233.06 million USD. Over the past 12 months, sales amounted to USD 126.41 million. As you can see, the company’s business is growing three times faster than the market as a whole, which indicates the high attractiveness of the company’s product for its target customer audience.

Financial performance of DLocal Limited

Net profit in 2020 amounted to USD 28.19 million, which is 80.71% more than in 2019. In the first quarter of 2021, this figure reached USD 16.93 million, and in 2020 for the same period it was only USD 553 thousand. The relative growth is almost 3000%. By the end of the year, net profit may reach USD 163 million. Net profit for the last 12 months amounted to USD 44.56 million.

Financial performance of DLocal Limited

In total, the company’s accounts as of March 31, 2021 have USD 127.5 million. DLocal Limited’s total liabilities amount to USD 309.8 million. Free cash flow at the reporting date reached USD 124.1 million. Considering that the company generates net profit, the current values ​​of this indicator indicate a high level of financial stability.

Strengths and weaknesses of the company

Now let’s talk about the risks and benefits of investing in company shares, having a complete picture of its business model. The strengths of DLocal include:

  • High growth rates of the company’s revenue.
  • High growth rates of the company’s net profit.
  • The transnational nature of business.
  • Easy and fast scalability of the business model.
  • The potential market of the company by 2022 is estimated at 35 trillion USD.

The weaknesses of the company include the following factors:

  • High level of competition in the industry.
  • The rate of revenue growth will slow down in the future.
  • The company has little presence in the markets of developed countries.

Details of IPO DLocal Limited and assessment of the company’s capitalization

During the IPO DLocal Limited intends to sell 29.4 million common shares at a price of USD 16-18 per share. When selling at the upper border of the price range, the volume of attracted will amount to USD 500 million. The underwriters were: HSBC Securities (USA) Inc. BofA Securities, Inc., Morgan Stanley & Co. LLC, Citi Global Markets, Inc., Goldman Sachs & Co. LLC, UBS Securities LLC and JP Morgan Securities LLC. If placed at the upper end of the price range, the company’s capitalization will amount to USD 4.98 billion.

To calculate the growth potential for the company’s securities, we use the ratio (multiplier) P / S (capitalization / revenue). At the time of the placement, P / S DLocal is 40, taking into account the potential of the address market before the end of the lock-up period, this multiplier may reach 60. Thus, the upside for the company’s securities may be 50% of the offering price.

Considering all of the above, I recommend that you consider the company’s shares for medium-term investment.

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