Down and Up

Investment Thoughts

04 Jun 2020

What Happened? UBER’s share price shot up by 6% in extended trading after the company gave a preliminary update on its first-quarter results. UBER expects its GAAP revenue to be reduced by an estimated $17 million to $22 million in the first quarter, and an estimated $60 million to $80 million in the second quarter because of a financial assistance program it implemented for drivers and delivery people amid the Covid-19 pandemic. As of end 2019, UBER had stakes in Didi, Grab and Zomato.
 
UBS View: In light of global city restrictions on work, entertainment and travel, in response to COVID-19, we ‎re-assess our operating assumptions for the ridesharing industry to reflect a pronounced late Q1& ‎Q2 slowdown with a recovery in Q3/Q4.
While we expect a drop in ridesharing activity (~-60-80% at trough), a pronounced snap back in the weeks or months post-trough as work and travel resumes could be witnessed. Additionally, a positive long term development is the potential shift in preference from mass transit towards single or shared transportation. The market has opportunities for repair and a shift in consumer behavior could help unlock further asset value across UBER’s portfolio.
 
Such views can be implemented in many ways, and examples are illustrated below. The examples have not been checked for suitability, to find out more about what may be suitable for you please speak to your client advisor. . 

Example of how investors can express this view:
Autocallable Reverse Convertible Notes (RCNs) on selected stocks

  • Enhance portfolio yield with 10% p.a. coupon.
  • The potential to buy the stock at a 48.57% discount to the current price.
  • Stock selection is based on UBS Research buy or neutral rating and large market capitalization.

Key Terms*

Tenor

6 months

Currency

USD

Underlying(s)

Costco Wholesale Corporation (COST US) and Walmart Inc. (WMT US)

Strike Level

75.45%

Coupon (p.a.)

10%

Autocall Level

98%

Coupon / Autocall Period Frequency

Monthly

Issuer (Rating)

UBS AG acting through its London branch (S&P:A+/Moody's:Aa3)

Worst-of Underlying

The Underlying with the lowest value of (Spot price / Initial price) at the time of observation

Payoff

Early redemption: The note will be early redeemed at 100% of the denomination with coupon for that period if the worst-of underlying closes at or above the Autocall level at each periodic observation date

At maturity:

  • Case 1: If the worst-of underlying closes at or above its Strike level, the investor will receive the coupon for that period, plus 100% of the denomination
  • Case 2: Otherwise, the investor will receive the coupon for that period, plus physical delivery of the worst-of underlying at Strike level
     

The same RCN structure can be tailored with a shorter tenor of 3 months on Uber Technologies Incorporated (UBER US), with indicative strike at 62.04% holding all other parameters the same.
 
For alternative stock underlyings, kindly refer to the UBS CIO Paper

Contact

  • In case of interest please contact your Client Advisor
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Key Risks: 

  • Return is limited to the coupon amounts.
  • You will not receive dividends or other income that may be paid on the Underlying(s)
  • A loss can result if the Underlying(s) closes below the Strike Level at maturity
  • Before maturity, the realisable value of the product may fall below the issue price even if the Underlying has appreciated against its initial price.
  • In a worst case scenario, the product becomes worthless and you will lose the capital invested
  • In the event that the product is redeemed early, you may not be able to reinvest the redemption proceeds in another instrument with a comparable return profile.
  • The product is unlisted and there may not be an active or liquid secondary market.
  • You are fully exposed to both the credit risk and the credit default risk of the Issuer. Should the credit rating of the Issuer deteriorate over the life of the investment, the product's value may be affected. Should the Issuer default, you may lose all capital invested and any return that may otherwise be payable/earned

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