What happened

DLocal Limited (DLO -0.62%) delivered preliminary results for the third quarter that showed year-over-year growth in total payment volume (TPV) decelerating over the prior quarter. Shares of DLocal were down 8.7% as of 12:10 p.m. EDT on Tuesday.

The stock is still up nearly 70% since its initial public offering earlier this year.

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So what

The company expects revenue to be between $67 million to $68 million, which is higher than the consensus analyst estimate of $64 million. But it seems investors were more concerned about DLocal's expectation for TPV growth to land in the range of 211% to 215% after posting 319% growth in Q2. DLocal attributes the growth in the third quarter to continued gains from enterprise merchants across several channels, including streaming, ride-hailing, advertising, retail, software-as-a-service, and travel. 

However, the company said that adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margin for Q3 should be between 37.3% to 38.2%. That's down from 40.6% in Q2 2020 and 44% in Q2 2021. The lower margin should bring net profit to between $18 million to $19 million, which is more than double the year-ago quarter.

A business person using a mobile phone.

Image source: Getty Images.

Now what

Despite the slower rate of growth, DLocal is making headway in a massive market, where it provides cloud-based payment services in over 30 countries around the world. It generated total payment volume of just $2.1 billion in 2020, yet DLocal is going after an addressable market worth over $1 trillion. The company has recently expanded its offering with fraud-detection capabilities and launched its services in new countries, including Malaysia and Vietnam in Q2. 

Still, investors are closely watching quarter-to-quarter growth trends for this recent IPO stock, given the highly competitive nature of this wide-open market. Shares sport a very high price-to-sales ratio of 120. At that valuation, the smallest misstep by the company is going to cause volatility in the share price.