On Wednesday, Citi updated its outlook on DLocal Limited (NASDAQ:DLO), a technology firm specializing in cross-border payments for emerging markets. The financial institution lowered its price target on the company's stock from $20.00 to $17.00 but retained a Neutral rating.
The adjustment comes as DLocal's management continues to evolve its approach to business. Citi acknowledges the company's efforts, particularly noting CEO Pedro Arnt's transparent discussion on the challenges of managing risk in the sector of emerging market payments and commerce enablement.
According to the CEO, scale, diversification, and technology are key to overcoming these challenges, although this path may take several years.
The analyst from Citi indicated that the necessary investments in these areas are expected to result in reduced margin levels in the short term, as these costs become a regular part of the business's expenses. Consequently, Citi's revised model anticipates continued strong revenue growth for DLocal, albeit alongside weaker margins.
Despite the recent appointment of Pedro Arnt as the sole CEO and a new CFO, Citi's stance remains cautious. The firm's decision to adjust its price target and estimates downwards is based on the company's mixed fourth-quarter results and a 2024 outlook that fell short of expectations, particularly when compared to the previous growth-oriented business model.
Citi's current position on DLocal reflects a Neutral/High Risk rating, suggesting that while the company's revenue may grow, there are significant uncertainties regarding its profit margins in the near future. This perspective is shaped by the company's strategic decisions and the broader challenges of operating within the emerging markets payment space.
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