Opening new positions

Redeploying some cash to investigate some new companies

I’m a big believer in incentives. That’s why when a company is interesting enough for me, I put some money in the game - ‘invest and investigate’ is a term I’ve borrowed from Stanley Druckenmiller.

I bought a position in dLocal earlier this year just for this reason. Then I spent 3 months learning about the payments space, sold my dLocal position, and now I’m (re)starting 2 positions in the space.

These aren’t ‘invest and investigate’ positions, since I’ve explored these companies quite in depth, however they’re far from core positions since each has some hair on them and I want to see how things play out. As with most of my core positions, I think they only become these over time, which is measured in quarters, as they execute and I can get a better and better understanding of what really drives the company and sector.

I’ll dedicate a post to each one separately but briefly the new positions are:

dLocal

I've written about dLocal as an invest and investigate in the past, where I outline what I like about the company. During my research into it I found a few things that made me sell it:

1. Increased competition in the space: All of the major payments processors are coming after dLocal’s markets, specifically Brazil and Mexico - the two largest emerging markets in LATAM.

2. The lack of corporate governance: dLocal suffers from misaligned incentives and a shareholder structure that isn’t public shareholder friendly. IMO the recent decision to pay dividends is a misuse of capital that showcases this. I’ve written about this here and here.

3. Customer concentration: two customers are each more than 10% of revenue and I believe either of these could cut dLocal out of key markets as they decide to vertically integrate.

These three reasons have made me question the long-term prospects of the company. However, at its current valuation a lot is priced in, giving decent downside protection.
While the competition is fierce and the emerging market environment changes - this will play out over years and I don’t have the confidence to call it now. It’s very dynamic. For example, dLocal recently partnered with PayPal Enterprise to improve their offering in markets where dLocal is active. This is a pure competitor who’s choosing to partner with dLocal instead of compete.

Additionally, CEO Pedro Arnt really is best in class, so some humility on my end and trusting in him is required. TAM and runway are long, and the risk / reward definitely skews faborably.

Together these merit the position and an interesting enough risk/reward for me to put my money where my mouth is and see how this plays out over time. Future in depth dLocal writeup to come.

Shift4

My second position that I'll be opening is in Shift 4. Shift 4 is another payment processor. They've been around since the 90s and have a long, impressive track record of growth and execution. They operate in the restaurant and hospitality segment, competing at the high end with Toast and Clover, as well as focusing on venues and sports stadiums. They are also aggressively pursuing the unified commerce approach of Adyen and expanding globally into emerging markets.

This is going to be a small position where, as usual, I will look to learn and judge the execution of the company over the next two years. What I like about the company is its focus on execution and speed, as well as its approach to growth through targeted M&A. This is the closest I’m willing to get to owning a serial acquirer at the moment.
They are clearly winning in the segments they operate in, and have room for upside with their upcoming acquisition of Global Blue, which sounds like a huge win with lots of synergies and new market access. However, the acquisition is only going to take place in the first few months of 2026, most likely, making this a longer-term catalyst.

I'm hesitant about owning Shift 4 for a few reasons. First is their high debt load. This is a leveraged company, especially after they've just raised debt to make the acquisition, which could weigh on the company during a downturn. While the company has structured their debt creatively, this will also cause dilution going forward.
Secondly, they are competing against one of my favorite companies, Toast, which has been the clearest winner in the restaurant and hospitality segment. There is a sense of going for second best when I already own the best in the segment.
Third is the acquisition itself, which is a very large and transformative acquisition that could be miss managed.

Those are three reasons why I'm more hesitant about this company. As an aside I also don't like the adjusted EBITDA they use to measure themselves. There are too many shenanigans in there for my comfort. However, they have executed very well over the past four years as a public company. There is a lot of potential from the M&A, management has proven themselves, and the valuation is more compelling. They trade at a third of Toast's market cap.

It's also important not to forget that there is a secular tailwind behind all of these companies as they take share from incumbents. At the present moment I find myself owning three companies competing in the hospitality space: Fiserv with Clover, Toast, and now Shift 4. Out of these three, my favorite by far is Toast. I've owned it the longest, it's been a core position, and I've been adding to it over the past two years.

However, after exploring the payment space in depth, I found two other opportunities: Fiserv as a trade after its recent sell-off, offering a good value opportunity for the next 12 months, and now Shift 4, which is aggressively entering the payments market and expanding beyond hospitality into new markets globally.

I’m opening a third position, this time a proper ‘invest and investigate’ but I’ll post about that later this week.