The Only Stock I Bought in 2025
Why dLocal (DLO) was the only business that passed my filters this year
The most important investing lesson I learned this year was not about valuation or timing.
It was about selectivity.
When you run a concentrated portfolio of businesses you admire, every new investment has to clear a brutal hurdle. Not “good.” Better than what you already own. With better risk-reward asymmetry.
Because every investment decision comes with an opportunity cost.
Out of the hundreds of businesses I studied this year, only one met that bar:
dLocal Limited (DLO 0.00%↑), which is now 8% of my portfolio.
dLocal has grown revenue by 68% per year on average for the last 5 years, is profitable, is capital-light, with insiders owning about half of the company. It fits almost every checklist of what makes a great company.
Diversification in Emerging Markets
dLocal is an Uruguayan fintech company with a very simple business. It connects global merchants with local payment systems in over 40 countries worldwide.
Most people in emerging markets have limited access to credit cards and many of them are even unbanked. But they do use their phones for local transactions on local payment systems.
For example, in Kenya, M-Pesa is a popular mobile payment service. Let’s say someone without a credit card wants to subscribe to Spotify. They can now do so with M-Pesa. This transaction is taking place with dLocal as the middleman in the background, connecting the global merchant (Spotify) with the local payment system (M-Pesa).
The global merchants won’t bother integrating hundreds of local payment systems on their platform, while the local payment systems don’t have the resources to connect to them. dLocal has the connections with operations in over 40 countries, over 700 merchants connected, and over 900 payment methods available. Thus, enabling billions in transactions for millions of people.
As such, dLocal can grow through different means:
Entering more countries
Enabling more payment methods
Partnering with more merchants
Getting more users
Users spending more money
Let’s look at a concrete example. In Q1 2016, the largest social network (Facebook) partnered with dLocal. In Q3, dLocal brought Facebook’s business into a new country. By Q1 2017, one of these countries reached over $1 million in transactions a month, and the second country in Q3 2017.
From that old list of partners, we can see that they partnered with some of the biggest names such as Uber, Netflix, Booking.com, and more.
The Top 10 merchants represent 60% of total volume but this number is going down as the company diversifies.
The diversification is also among countries since investing in emerging markets is always risky. For example, in 2024, they had to considerably reduce their business in Nigeria because of regulations. There's always going to be some political, financial, fiscal, regulatory crisis somewhere in emerging markets. But overall, as a group, they can only grow over the long term.
The population of emerging markets is growing rapidly and people are getting richer with better access to technology. They are spending more money online and dLocal is likely to take a share of these transactions.
Why is no one doing it?
dLocal is a business that requires little capital to grow and operate. They are a fintech company that doesn’t have to deal directly with end-user KYC since they work in the background. So, where are the competitors?
The closest companies to dLocal would be Stripe and Adyen but we know that these companies are more focused towards the developed markets. They won’t bother to enter small markets and deal with the regulations. This is a top-down venture and it is hard to do in different countries. dLocal can do it because they have been building their business from the bottom-up. Local companies can try to compete with them but they often cannot grow beyond their borders.
This is the moat of dLocal.
And as dLocal grows, the better the relationship with the merchants become, making it easier to expand the business into more markets and attracting more merchants.
That’s how dLocal has been able to grow Total Payment Volume (TPV), revenues, and gross profits by over 30% annually since they went public in 2021. You will notice that TPV is growing faster than revenues, which is growing faster than gross profits. And that’s one of the reasons why the market is worried.
The Net Take Rate (Gross Profit/TPV) is declining each year and is now at 1.05%.
This isn’t bad! It should be expected that as the company enhances their relationship with their partners, the latter will get better deals. The growth is in volume. As long as TPV grows faster than the fall in take rate, dLocal will be making more money. And as we saw, in the markets where they operate, the growth prospect is huge.
What matters eventually is the bottom line and dLocal is profitable.
However, the numbers can be misleading due to the nature of the business. This is a company that handles customer cash temporarily, and therefore, not all cash flows belong to the owners of the company. As for net income, because of changes in the debt securities they own in various currencies, there can be non-cash profits and losses, alongside foreign currency fluctuations. In my full analysis of dLocal on my Investing Community (link below with your Christmas present), I talk about the nuances of the economics and accounting of dLocal and how to value the company.
The complexity of the accounting has led to some short sellers claiming that the company is fraudulent.
Where’s the fraud?
Muddy Waters Research, an activist short-selling firm founded by Carson Block, published a short report on dLocal in November 2022, alleging discrepancies in cash balances and potential fraud. I have looked at the whole short report in my full analysis. To be brief, let’s look at an example.
The short sellers argued that the TPV for new merchants in the registration documents did not match those of the first annual reports. According to dLocal, they changed the way the metric was calculated. In the registration documents they excluded smaller merchants and also the timing on when these new TPV would be recorded changed.
The company addressed all the other issues and launched an independent forensic accounting investigation. No fraud was discovered. There was certainly some lack of transparency and changes were implemented.
The biggest change was a new CEO, Pedro Arnt, joining dLocal. The two founders still own over 30% of the company and are directors of the company, with one of them (Sergio Fogel) also serving as President. Putting the short report aside, it was also important to bring in a new management team capable of leading a global company. And Pedro Arnt was perfect for this job. He spent 25 years at MercadoLibre, including 12 years as CFO, making it the largest tech company in Latin America. I don’t think someone would quit his job as the CFO of a hundred-billion dollar company to commit fraud. Pedro Arnt hired the right people to continue the mission of dLocal.
In one of his recent interviews, Pedro Arnt explained another reason why the market did not understand the business of dLocal: those looking at tech companies are scared of the fluctuations associated with emerging markets, while those looking for investing in emerging markets are looking for real assets.
Growth with shareholder returns
But those who did invest in dLocal were rewarded.
In its 4 years as a public company, dLocal returned about $350 million—about 8% of its present market cap—to shareholders. The company chose a special dividend this year over buybacks because of the limited float. But with their largest shareholder floating a quarter of their shares (with no additional capital raised or dilution), the company might have better options in the future to return cash to shareholders.
There are not many companies in the world with the ability to reward shareholders yet grow at such a rapid rate. In many ways, dLocal is a unique company led by insiders with skin in the game, with a massive growth prospect, with little capital requirement, and diversified across different countries in emerging markets. It is misunderstood by “traditional investors” but for me, it looks like a long-term compounder trading at a discount to its intrinsic value.
It is a rare gem. And that’s why it is the only new company that made it to my portfolio this year.
You can find the full analysis of dLocal as a Premium member of my Investing Community, where you have access to all my research, analyses, private WhatsApp community, courses, portfolio review, and more. I have a special 40% discount to all subscriptions for the first 25 people who sign up. Use the discount code XMAS.