Muddy Waters is short DLocal Ltd. (NASDAQ: DLO). DLO, a fast-growing payments company based in Uruguay, spun out of a high-risk processing business, has reported stellar growth and profitability that makes it an outlier. While we have found no pictures of its CEO wearing black turtlenecks, our research leads us to believe that DLO is likely a fraud. We also have concerns over its disclosures about, and controls of, client funds.
Early in our research, we were reminded of the old adage “To hide a lie, a thousand lies are needed.” DLO has repeated disclosures about its TPV and accounts receivable that flatly contradict one another. There is also a contradictory discrepancy between two key subsidiaries’ accounts payable and accounts receivable. These types of seemingly innocuous misstatements are, instead, often signs of cooked books because it can become quite a strain to keep the numbers straight once you start manipulating them.
As we dug in, we found a series of lies that the company has told, along with accounts it has altered to corroborate the lies. This series of lies had to do with disguising the timing of an option exercise and the source of funding for that insider option exercise. Absent the most glaring level of incompetence, these account alterations should point to fraud. This line of research also gives rise to concerns about the flow of funds around DLO’s PrimeiroPay asset acquisition in 2021.
We are skeptical of DLO’s reported TPVs, but we are highly skeptical of its Take Rates. Approximately half of DLO’s revenue and Take Rates are comprised of foreign exchange gains and fees. We estimate that DLO’s FX gains are roughly double – if not close to triple – what they should be.
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