DLocal: Strong Growth, But Profitability Challenges Persist
Taking a Look at DLocal's (DLO) Earnings Results.
DLocal (DLO) announced their Q4 and full-year 2024 earnings results with an outlook heading into 2025 after-hours yesterday. The company missed analysts’ expectations, and the market has given them a 25% haircut in today’s trading day. Although there are many obstacles, most out of their control, it seems as if these are short-term issues. Let’s take a look at their earnings results.
DLocal Q4 2024 Earnings Breakdown & 2025 Outlook
DLO delivered strong total payment volume (TPV) growth in Q4 2024 but faced profitability challenges due to declining take rates, rising opex, and currency devaluation in key markets. While the company continues to expand, investors are monitoring whether it can stabilize margins and improve earnings performance.
Q4 2024 Financial Performance
TPV: $7.7B (+51% YoY, +18% QoQ)
Revenue: $204M (+9% YoY, +10% QoQ)
Gross Profit: $84M (+20% YoY, +7% QoQ)
Operating Income: $42.3M (+3% YoY, +3% QoQ)
Adjusted EBITDA: $57M (+16% YoY, +9% QoQ)
Net Income: $57M (+16% YoY, +9% QoQ)
Net Take Rate: 1.1% (down from 1.4% in Q4 2023 and 1.2% in Q3 2024)
Gross Profit Margin: 41% (+4pp YoY, -1pp QoQ)
Adjusted EBITDA Margin: 28% (+2pp YoY, flat QoQ)
Full-Year 2024 Financial Performance
TPV: $26B (+45% YoY)
Revenue: $746M (+15% YoY)
Gross Profit: $295M (+6% YoY)
Operating Income: $189M (-7% YoY)
Adjusted EBITDA: $189M (-7% YoY)
Net Income: $204M (+9% YoY)
Gross Profit Margin: 39% (-3pp YoY)
Adjusted EBITDA Margin: 25% (-5pp YoY)
Key Takeaways for FY 2024
Record TPV growth driven by expansion into new markets
Strong cash flow, supporting reinvestment into business growth
Revenue growth slowed by FX fluctuations and lower take rates
Operating income declined due to higher expenses
Adjusted EBITDA margin contracted as costs grew faster than revenue
2025 Outlook & Guidance
DLO expects strong growth in 2025, though management has said that take rate compression will continue as it expands into new markets. The company aims to increase profitability through efficiency improvements, new product launches, and cost control.
TPV: $35B - $38B (+35% - 45% YoY)
Revenue: $930M - $1.00B (+25% - 35% YoY)
Gross Profit: $350M - $370M (+20% - 25% YoY)
Adjusted EBITDA: $225M - $245M (+20% - 30% YoY)
Net Take Rate: Expected to slightly decline as larger merchants receive lower pricing.
2025 Strategy & Focus Areas
Expand into high-growth emerging markets (LatAm, Africa, Asia).
Improve take rate mix by prioritizing higher-margin verticals (SaaS, remittances, ride-hailing).
Enhance cost efficiencies through automation, renegotiated processor fees, and operational optimizations.
Navigate FX volatility with better hedging and pricing strategies.
Invest in product innovation and new payment solutions to drive long-term growth.
My Take
This was not a good performance by DLO, unfortunately. However, when you listen to the call and read their filings, what is plaguing the company right now are likely short-term issues. Depending on what lens you are using, most of this is not in their control either.
Declining Take Rates – Why It’s Happening and Its Impact
One standout worry from Q4 was the drop in take rates, dipping to 1.1% from 1.4% in Q4 2023 and 1.2% in Q3 2024. Yeah this is not good, but it also has been reiterated by management in the past. The simple reality though is that, while DLO processed more transactions than ever, it’s earning less revenue per transaction. A growing share of the lower-margin transactions in newer markets, is from where the company is still building a customer base. These regions generally command lower fees at first, and on top of that, higher payout transaction volume (which naturally carries lower fees) contributed to the overall decrease.
To complicate this even more, currency depreciation in places like Nigeria and Argentina further whittled down the dollar value of local-currency transactions. So, what management is trying to do, is offset these pressures by pushing higher-margin offerings and negotiating lower processor costs, but there’s no denying that take rate compression is a serious challenge for near-term profitability.
Short-term or long-term issue?
It’s partly short-term in my opinion—take rates often fluctuate with the product mix. But it also reveals a structural challenge: as they venture further into lower-margin markets, the question becomes whether its higher-margin products can offset that compression over time.
Rising Opex – Why Costs Are Growing
Their aggressive expansion requires significant investment in technology, operations, and talent. These necessities drove a 44% YoY jump in opex, with product development and IT costs soaring 70%. This surge reflects the company’s commitment to improving its payment infrastructure, rolling out new features, and broadening its product lineup. It’s the price of future growth, but it’s putting a dent in short-term margins.
Sales, marketing, and general operations expenses also shot up (29%) as they moved into new markets. While these costs are normal for a rapidly growing business, the fact that they outpaced revenue growth (44% vs. 9%) it does raise valid concerns about cost discipline.
Short-term or long-term issue?
Mostly short-term, tied to an investment phase aimed at scaling the business. However, if expenses keep outgrowing revenue, it could be a warning sign of deeper inefficiencies. Right now, it’s just way too soon to tell (unless you have a crystal ball of course).
Currency Depreciation in Emerging Markets – A Hidden Revenue Challenge
Because DLO generates much of its revenue in emerging markets, currency swings against the U.S. dollar can really sting. In Q4 2024, depreciation in currencies like the Nigerian naira and the Argentine peso significantly hurt reported results. Even though they processed more transactions in these countries, converting to USD nullified much of that growth. By management’s calculations, without these currency headwinds, reported revenue growth could have been around 40% YoY instead of just 9%. While hedging strategies help mitigate some of this risk, emerging market volatility isn’t going away anytime soon. Investors need to recognize that currency fluctuations are part of the deal when you’re focused on global fintech. This is just a fact, their focus is on emerging markets.
Short-term or long-term issue?
It’s primarily a short-term headwind but also an ongoing risk. Over time, DLO can fine-tune its pricing and expand hedging, but currency swings will continue to influence quarterly results.
Shift in Revenue Mix – More Transactions, But Lower Profitability
As the company expands geographically, it naturally shifts where and how transactions occur. The upside? TPV jumped 51% YoY. The downside? Take rates vary by region, and some areas—like Egypt and South Africa—come with lower fees.
In Mexico, an influx of Tier 0 merchants (high-volume businesses that demand lower pricing) also dragged down average take rates. Brazil saw a volume bump from Payment Orchestration, but that, too, carried lower fees. All of this added up to a sizable increase in transaction volume that didn’t translate into comparable revenue or profit gains.
Short-term or long-term issue?
Partially short-term, as the company is still perfecting its regional pricing strategies. But it’s also a long-term dynamic: expanding into markets with lower fees is a strategic choice, so they will need to offset this with higher-margin revenue streams elsewhere.
Higher Tax Rate – How It Cut Into Profitability
An unexpected factor hitting the bottom line was a higher effective tax rate, spiking from 8% in Q3 2024 to 27% in Q4. This jump was mostly due to a one-time tax settlement from previous periods. If you strip out that settlement, the tax rate would have hovered closer to 16%, aligning with historical norms. While this issue doesn’t speak to ongoing performance, it did make the quarter’s net income look weaker than it really was.
Short-term or long-term issue?
It’s a one-off, short-term issue. Not likely to be a problem in future quarters.
Strong Growth in Volume, But Lower Profitability
Despite these challenges, TPV skyrocketed 51% YoY like mentioned above, which signals demand for its services. Unfortunately, the dip in take rates, rising costs, currency issues, and mix shifts all kept that volume growth from fully translating to stronger revenue and earnings. While revenue nudged up 9% and gross profit rose 20%, adjusted EBITDA only climbed 16%. This gap between volume growth and profit growth is the heart of investor concerns: can they keep scaling up while staying profitable?
Short-term or long-term issue?
It’s partly short-term growing pains, but also points to the need for a more balanced strategy. If they can hone in on cost controls, push take rates higher, and handle currency headwinds better, then profitability should improve in tandem with volume.
Should Investors Be Worried?
From my view, most of DLO’s Q4 2024 setbacks look more like temporary hurdles than permanent long-term barriers. Still, some of these pressures—like expanding into lower-fee regions and dealing with emerging market currency volatility—are baked into the business model. The real question is how effectively management can juggle cost control, revenue mix, and take rate improvements as the company scales.
For long-term investors, I think DLO’s foundation remains solid, and these current challenges may actually open up a more attractive entry point. In the short run, though, I would expect some more volatility in the stock price. For me personally, I’m holding my position. I would nibble more shares, but I’m giving priority to other ideas in the market right now.