Baidu (NASDAQ:BIDU) and MercadoLibre (NASDAQ:MELI) are both well-known stocks for investors seeking overseas growth. Baidu owns the largest search engine in China, and MercadoLibre is the largest e-commerce player in Latin America.

But over the past three years, Baidu's stock has declined nearly 50% as its core advertising business has withered. MercadoLibre's stock, meanwhile, has surged about 440% as more Latin Americans have started to shop online. Will MercadoLibre continue to generate stronger returns than Baidu? Let's dig deeper to find out.

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The differences between Baidu and MercadoLibre

Baidu generated 68% of its revenue from its advertising business last quarter. Its streaming video unit iQiyi (NASDAQ:IQ) generated 28% of its revenue, and the remaining 4% of its revenue came from its other businesses, including smart speakers and cloud services.

Baidu controls 75% of China's search market, according to StatCounter. Its closest competitor is Sogou (NYSE:SOGO), which holds a 13% share and is in the process of being acquired by Tencent (OTC:TCEHY).

MercadoLibre generated 66% of its revenue from its e-commerce marketplaces last quarter. The remaining 34% came from its fintech business, which includes its Mercado Pago payment platform. It operates its marketplace across 18 countries, but its top three markets are Brazil (64% of its revenue last year), Argentina (20%), and Mexico (12%).

MercadoLibre is the top e-commerce player across all its major markets. That market dominance has prevented Amazon from establishing a meaningful presence in Latin America.

Baidu's core business is still struggling

Baidu's revenue rose 5% last year, but its adjusted EPS tumbled 24%. In the first half of 2020, its revenue declined 4% year-over-year but its adjusted EPS rose 80%.

Baidu's core advertising revenue declined year-over-year for five straight quarters due to the economic slowdown in China and tough competition from Tencent's WeChat, ByteDance's Douyin (also known as TikTok), and other non-search advertising platforms.

That decline forced Baidu to rely more heavily on iQiyi's growth, but the video platform's losses weighed down its margins. To offset those declines, Baidu divested several non-core businesses and reduced the TAC (traffic acquisition costs) for its search engine.

Those measures, along with easy year-over-year comparisons, boosted its earnings growth in the first half of 2020 -- but those gains will fade in the second half of the year. For the full year, analysts expect Baidu's revenue and earnings to rise 3% and 7%, respectively, as it continues to offset its ad declines with iQiyi's growth while aggressively cutting costs.

The pandemic lights a fire under MercadoLibre's business

MercadoLibre's revenue rose 60% last year, with robust growth across all its top markets, but its net loss per share more than quadrupled.

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Image source: Getty Images.

Its revenue rose 50% year-over-year in the first six months of 2020, with accelerating growth in the second quarter, as the pandemic sparked more online purchases. It ended the first half of the year with 65.5 million unique active users, up from 47.6 million a year earlier.

Its number of confirmed new registered users grew from 24.7 million to 29.9 million, as its GMV (gross merchandise volume) grew 30% year-over-year to $8.46 billion. Its TPV (total payment volume), which supports its fintech business, surged 59% to $19.31 billion.

MercadoLibre also remained consistently profitable in the first half of the year, and its diluted EPS rose 47%. Analysts expect its revenue to rise 54% this year with a full-year profit as it further optimizes its shipping expenses and investments.

Baidu's discount vs. MercadoLibre's premium

Baidu's stock trades at just 13 times forward earnings and 2.5 times next year's sales, but its cheap for obvious reasons.

Its core advertising business faces tough headwinds, its dependence on iQiyi is unsustainable, and its expansion into new markets like cloud and AI services isn't generating meaningful revenue yet. The other two members of the BAT tech triumvirate, Alibaba and Tencent, are also generating much stronger growth than Baidu.

MercadoLibre initially looks expensive at 250 times forward earnings and 13 times next year's sales. However, that premium is also arguably justified by its dominance of Latin America's e-commerce market, its robust growth rates, its resilience throughout the pandemic, and its improving profitability. Moreover, MercadoLibre's current valuations still make it cheaper than other high-growth tech stocks.

Therefore, I'd rather pay a premium for MercadoLibre's growth than bet on Baidu's turnaround. Baidu isn't doomed, but it needs to fix its struggling advertising business before I consider it a worthy investment again.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.