dlocal's Valuation Plunges Even Further Amid Fraud Accusations
Muddy Waters alleges insider dumping and "inconsistent" TPV growth as dLocal's value plunges 37%.
Five months ago, we shared the story of Uruguay's star. Fintech dLocal ($DLO) had grown its TPV (total payment volume) 505% in less than two years. It became the country's first unicorn and made its owners the first billionaires in the process. It had also been profitable since its first year of operations and could brag higher margins per transaction than its competition. dLocal's impressive financial statements were exemplary in the crowded LatAm Fintech space, setting a gold standard for other tech startups to follow.
However, things have flipped for the startup. Last week, Muddy Waters Research LLC, a recognized short-seller and research firm that reports accounting fraud by publicly traded companies, released a devastating report on its short position for dLocal. To summarize their 47-page analysis, they quote Mark Twain:
To hide a lie, a thousand lies are needed.
What was in the report? 👇
Their most damning accusation came from their observation that within five months of dLocal's IPO, management and directors dumped over $1 Billion of dLocal shares or, as Muddy Waters aggressively put it:
Rats fleeing a sinking ship.
However, their evidence isn't restricted to dubious sales from insiders. We summarize the main points of concern below:
dLocal's reporting on merchant and TPV growth between 2019 and 2020 has been inconsistent from report to report.
There are account-filling conflicts around dLocal's acquisition of PrimeiroPay.
The company's Take Rates (the % of money charged per transaction) are far too large, and their revenue in forex gains seems to be more than twice what would be expected.
Several governance shortcomings and auditor choices are highly questionable.
Finally, multiple discrepancies between merchant account movements and dLocal's cash flow. As MW states, "$DLO's disclosures are inadequate, inaccurate, or $DLO likely used client funds for its 2020 cash needs."
We hope that dLocal can properly defend itself soon. So far, it has said little, but to be fair, short-sellers like Muddy Waters have a vested interest in seeing companies' stock prices drop and, like the Joker, watch the world burn. The market is speaking, though, and the stock is now down 37% since the report came out.
Here at Latinometrics, we hyped the company as an example to follow. And we, along with investors, hopeful entrepreneurs, and probably many Uruguayans, would be terribly disappointed if dLocal turned out to be not an actual unicorn, but a donkey with a horn glued to its face.