Adobe Sued By FTC Over Hidden Fees, Cancellation Issues

outside of Adobe headquarters in San Jose, California — (Image credit: David Paul Morris/Bloomberg via Getty Images)

The Federal Trade Commission (FTC) is taking action against Photoshop parent Adobe (ADBE) and two of its executives for allegedly hiding early termination fees and making it difficult for consumers to cancel their subscriptions.

Adobe pushed customers to subscribe to "annual paid monthly" plans without properly disclosing that they would be required to pay an early termination fee – which is 50% of the remaining monthly payments – if they cancel in their first year, the FTC said in its complaint.

In addition, the regulatory agency alleges that Adobe makes it very difficult to cancel subscriptions, including forcing consumers to navigate numerous pages to cancel online.

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"Adobe trapped customers into year-long subscriptions through hidden early termination fees and numerous cancellation hurdles," said Samuel Levine, director of the Federal Trade Commission's Bureau of Consumer Protection, in the press release. "Americans are tired of companies hiding the ball during subscription signup and then putting up roadblocks when they try to cancel. The FTC will continue working to protect Americans from these illegal business practices."

Adobe said it will refute the FTC's claims in court. "Subscription services are convenient, flexible and cost effective to allow users to choose the plan that best fits their needs, timeline and budget," said Dana Rao, general counsel and chief trust oficer at Adobe, in a statement. "Our priority is to always ensure our customers have a positive experience. We are transparent with the terms and conditions of our subscription agreements and have a simple cancellation process."

Is Adobe stock a buy, sell or hold?

Adobe stock has been a solid choice for buy-and-hold investors, as evidenced by its impressive 20-year return. More recently, shares surged nearly 15% on June 14 thanks to an encouraging earnings report.

It's unsurprising then that Wall Street is upbeat toward the tech stock. According to S&P Global Market Intelligence, the average analyst target price for ADBE stock is $608.78, representing implied upside of nearly 17% to current levels. Additionally, the consensus recommendation is Buy.

Financial services firm CFRA Research is one of the more bullish outfits on ADBE stock with a Buy rating and $630 price target.

"It appears as if competitive concerns from open-source platforms are overblown as we see potential for growth rates to stabilize/improve on easier comparisons and more favorable pricing landscape in the coming quarters," CFRA Research analyst Angelo Zino said in a recent note. "We think ADBE is better positioned than most enterprise software companies to monetize AI across its ecosystem."

CFRA's $630 price target represents implied upside of roughly 20% to current levels.

Joey Solitro is a freelance financial journalist at Kiplinger with more than a decade of experience. A longtime equity analyst, Joey has covered a range of industries for media outlets including The Motley Fool, Seeking Alpha, Market Realist, and TipRanks. Joey holds a bachelor's degree in business administration.