2019 was a tough year for Chinese tech stocks, due to the economic slowdown in China and the ongoing trade war. Yet some of those stocks fared better than others.

Shares of online dating leader Momo (NASDAQ:MOMO), for example, rallied nearly 50% as the company impressed investors with its robust growth in users, revenue, and earnings. Meanwhile, shares of search giant Baidu (NASDAQ:BIDU) sank nearly 20% as its core advertising business hit a brick wall.

A man draws a rising chart on a chalkboard.

Image source: Getty Images.

However, the recent "phase one" trade deal -- with the U.S. agreeing to roll back some tariffs if China buys American agricultural goods, halts demands for forced technology transfers, and enforces intellectual property violations -- is bringing some value-seeking investors back to beaten-down Chinese stocks like Baidu.

Let's take a closer look at Momo and Baidu, and see if it's smarter to stick with the year-long winner or take a chance on the rebounding loser.

How do Momo and Baidu make money?

Momo generates most of its revenue from its eponymous app, which started out as a social networking app but evolved into a platform for online dating and live streaming videos. The rest of its revenue comes from the smaller app Tantan, a Tinder clone it acquired last year.

Momo generated 74% of its revenue from its namesake app's live video streams last quarter. It encourages viewers to buy virtual gifts for their favorite broadcasters, and splits that revenue with its content creators. The rest of its revenue comes from ads, mini games on Momo, and premium subscriptions for Momo and Tantan's online dating services.

Baidu generated 73% of its revenue last quarter from its advertising business, which sells ads across its search engine and network of portals and apps. This core business faces two main headwinds: sluggish marketing spending amid the economic slowdown, and tough competition from rivals like Tencent's WeChat and ByteDance's TikTok and Toutiao.

The rest of Baidu's revenue came from its "other" businesses unit, which includes its video streaming platform iQiyi (NASDAQ:IQ), cloud services, and smart speakers. iQiyi, which was spun off in an IPO last year, generates nearly all of that segment's revenue.

How fast are Momo and Baidu growing?

Momo and Baidu both struggled with decelerating revenue growth over the past year:

YOY revenue

Q3 2018

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Momo

51%

50%

35%

32%

22%

Baidu

27%

22%

15%

1%

0%

YOY = Year-over-year. Source: Company quarterly reports.

Momo's revenue growth decelerated over the past year for two reasons: It lapped its acquisition of Tantan, and it temporarily pulled Tantan from app stores over allegations of inappropriate ads between April and July. It also suspended news feed posts on both Momo and Tantan from May to June.

Yet those headwinds have faded, and Momo's total monthly active users (MAUs) still grew 3% annually to 114.1 million last quarter. Its total paying users, including Tantan, rose 7% to 13.4 million. Those growth rates indicate that Momo's core business remains well-insulated from macro headwinds. It expects its fourth-quarter revenue to rise 18%-20% annually, and analysts anticipate 18% revenue growth next year.

A person uses an online dating app.

Image source: Getty Images.

Baidu's ad revenue fell annually over the past two quarters as advertisers pivoted toward Gen Z-friendly platforms like TikTok and Bilibili. Its total number of marketing customers also fell 4% annually last quarter, due to soft demand in the healthcare, gaming, financial services, and auto logistics markets.

Baidu is relying heavily on the growth of iQiyi to offset its sluggish advertising growth, but iQiyi is still operating at a loss, which throttle the company's overall margins. On the bright side, Baidu expects 3% revenue growth in the fourth quarter, and analysts anticipate 11% growth next year as its ad business warms up again.

Profitability and valuations

Momo and Baidu are both consistently profitable. Momo's non-GAAP earnings are expected to grow 27% this year and another 20% next year -- impressive growth rates for a stock that trades at just 11 times forward earnings.

Baidu's non-GAAP earnings are expected to decline 45% this year due to its growing dependence on an unprofitable business, but rebound 31% next year as its advertising business recovers. However, its stock remains pricier than Momo's at 18 times forward earnings.

It's clear why Momo outperformed Baidu -- it has a more recession-resistant business, it faces fewer direct competitors, and its stock is cheaper relative to its earnings growth. These strengths indicate that Momo should outperform Baidu for the foreseeable future. But investors should still keep an eye on Baidu's gradual recovery.