Last week, I explained why I don’t want to own Facebook (NSDQ: FB) in 2020. Facebook has recovered strongly this year, gaining more than 50% through the end of November. However, it may run into political headwinds next year that could send its share price tumbling.

For an entirely different reason, I also believe that Salesforce.com (NYSE: CRM) may take a dive next year. If my hunch proves correct, the stock could have a long way to fall. CRM doubled in value during the past three years but has stagnated over the last nine months.

Before I get into the reasons why I think the company is vulnerable to a big drop, a quick recap of how Salesforce got to this point is in order. Salesforce was founded in 1999 by Marc Benioff along with a trio of software developers. Their concept was simple: Offer a customer relationship management solution via the cloud that can be integrated with every aspect of the sales process.

That product was an overwhelming success. In 2004, Salesforce went public and raised $110 million. In 2005, its first full year as a publicly traded company, Salesforce recorded $176 million in sales.

Over the next seven years, Salesforce was profitable. However, from 2012 to 2015 the company racked up over $800 million in losses. During that span, sales more than doubled. However, the company borrowed a page from the Amazon.com (NSDQ: AMZN) playbook and spent heavily on acquisitions to fuel growth.

In 2018, Salesforce reported $127 million in net income on $10.5 billion in sales. That works out to a profit margin of a little over 1%.

Last week, Salesforce released its Q3 results that included record quarterly sales of $4.5 billion. At the same time, the company reported a loss of 12 cents per share.

A Virtuous Cycle

Salesforce knows how to grow sales. The question is, can it also turn a profit?

When it comes to tech stocks, making a profit is not always the top priority. Capturing market share takes precedence, which presumably can later be converted to positive net income.

Look no further than Tesla (NSDQ: TSLA) for proof of that. Tesla has never turned a profit. Its enigmatic founder, Elon Musk, openly admits he has no idea when that might happen.

Nevertheless, Tesla now has a market capitalization of $60 billion compared to $35 billion for Ford Motors (NYSE: F) and $50 billion for General Motors (NYSE: GM), both of which are profitable.

The trick that Benioff (and Musk) have figured out is this: so long as your company is not profitable, it must be measured by some other metric. And that metric, for better or worse, is top-line sales revenue.

Benioff has spent heavily to grow Salesforce to its current size. Six months ago, he paid $15.7 billion to acquire Tableau. Actually, he didn’t spend any money at all. He paid for the deal using CRM stock as his currency.

That was a smart move on Benioff’s part. As long as the stock market rewards a company for growing revenue at the expense of profits, why not use that stock as the currency to pay for that growth?

It’s a virtuous cycle that can go on as long as nobody cares about profits. But that’s where I think Salesforce may run into trouble next year.

Mounting Competition

Salesforce may soon face a formidable competitor in International Business Machines (NYSE: IBM). Shortly after Salesforce made its deal with Tableau, IBM bought Red Hat for $34 billion (in cash) to enhance its cloud computing capabilities.

Once fully integrated with its Watson artificial intelligence unit, IBM’s CRM product should soon rival Salesforce’s in sophistication. When that happens, competing for sales may prove considerably more difficult for Salesforce.

To be clear, I am an admirer of Benioff and the way he has adroitly guided Salesforce to the top of its industry. His product deserves its excellent reputation for functionality and reliability.

The only persistent knock against its product is its high price, which will be difficult to maintain in the face of mounting competition from industry giants Oracle (NSDQ: ORCL), Microsoft (NSDQ: MSFT), IBM and others.

My beef with Salesforce is its valuation. All that stock Salesforce has issued to pay for acquisitions will act as a drag once the stock market starts evaluating the company on its per-share profitability. Salesforce now has roughly 800 million shares of stock outstanding, up from 700 million just two years ago.

In terms of valuation, let’s assume that Salesforce deserves a forward price-to-earnings ratio (PER) the same as Amazon’s multiple of 65. That means to justify a share price of $160, Salesforce would need to generate earnings per share (EPS) of $2.46.

That’s nearly double the $1.46 in EPS Salesforce recorded during the 12 months ending April 30, 2019. However, that figure has turned negative since the Tableau acquisition and has been trending lower over the past three quarters.

Sending a Message

I may be proven wrong, but I don’t think the stock market will continue to reward companies for losing money in 2020. Instead, just the opposite appears to be happening. While Amazon’s share price has gone nowhere over the past six months, hugely profitable Apple (NSDQ: AAPL) is up nearly 50%.

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The stock market is sending a clear message to Benioff. It’s time to prove that all those acquisitions can really pay off. However, it appears Benioff may be planning his departure from Salesforce at precisely the time the company may need him most.

Last year, Benioff and his wife purchased Time magazine for $190 million. Benioff said he had no plans to get involved in the day-to-day management of the business since running Salesforce consumed all of his time.

Those plans may be changing. Four months ago, Benoff named Keith Block as his co-CEO at Salesforce. Block’s forte is operations and finance, which may offer a clue as to the future direction of Salesforce.

Running a company at a loss is easy, especially when you’re spending other people’s money. Converting it to a profitable business model will require financial discipline, a demanding task that Benioff may prefer someone else handle.

I don’t see enough upside potential left in CRM to justify owning it in 2020. But there are plenty of other ways to make money with considerably less risk.

Consider utilities stocks. They’re not as “sexy” as technology stocks like Salesforce, but they’re safe income generators in uncertain times.

Year to date, the utilities sector has been on a tear and outperformed the broader market. Income, growth and safety, all in one asset class? If that’s boring, sign me up! For our “dividend map” of the best utilities stocks to buy, click here now.