Baidu (NASDAQ:BIDU), Alibaba (NYSE:BABA), and Tencent (OTC:TCEHY), collectively known as China's BAT stocks, have struggled with concerns about the Chinese economy and the escalating trade war over the past 12 months.

Baidu's stock was cut in half, while Alibaba and Tencent both fell more than 10%. Are those declines creating buying opportunities for long-term investors? Let's dig deeper into the companies' latest earnings reports to find out.

Network connections across the skyline of Shenzhen, China.

Image source: Getty Images.

Baidu's core advertising business hits a brick wall

Baidu controls more than two-thirds of China's online search market, but it faces tough competition from Tencent-backed Sogou and Alibaba's Shenma, which now control nearly a quarter of the market, according to StatCounter.

Baidu is also struggling to grow its core ad business (73% of its top line) as China's economy decelerates. Its online marketing revenue gained just 3% annually during the first quarter and broke a multiquarter streak of double-digit growth.

Baidu's total revenue still rose 15% (21% excluding its upcoming divestments), thanks to the growth of its video streaming platform, iQiyi, but it expects nearly flat growth (1% to 6% excluding divestments) in the second quarter.

Baidu also reported its first quarterly loss since its IPO in 2005, as higher spending on investments in other markets (like self-driving cars, smart speakers, and short-form video) caused its total operating expenses to spike 53% and outpace its revenue growth. Baidu didn't provide any earnings guidance, but its decelerating sales growth and rising expenses indicate that it could see red ink for several more quarters.

Alibaba's marketplaces are healthy, but its other units are money pits

Alibaba fared much better than Baidu last quarter. Its revenue surged 51% annually, marking an acceleration from the previous quarter, as its adjusted net income improved 42%.

Alibaba's core commerce business, which includes its Tmall and Taobao marketplaces, generated 84% of its sales during the quarter. Revenue from that segment climbed 51%, annual active customers at its marketplaces increased 3% to 654 million, and its operating profit rose 16%. However, Alibaba's other three businesses -- cloud computing, digital media and entertainment, and innovation initiatives -- all remained unprofitable.

Alibaba Cloud faces tough competition from Tencent, which now ranks second in China's cloud market, according to IDC. Meanwhile, Alibaba's digital media platforms -- like Youku Tudou and Alibaba Music -- have fewer users than competing services like Tencent Video, iQiyi, and Tencent Music. Simply put, Alibaba is subsidizing those money-losing businesses with its higher-margin marketplaces.

That strategy, along with the recent settlement of a class-action lawsuit, caused Alibaba's operating margin to tumble 6 percentage points annually to 9%. Alibaba expects its revenue to rise by 33% in fiscal 2020, but it didn't provide any earnings guidance.

A woman watches a streaming video on a laptop.

Image source: Getty Images.

Tencent's sales are slowing, but it has a new growth engine

Tencent's revenue rose just 16% annually last quarter, marking its slowest growth rate since its 2004 IPO. That slowdown occurred for two main reasons: Its online gaming business is still recovering from the nine-month freeze on new gaming approvals last year, and its advertising business is slowing down.

Tencent's online gaming revenue, which accounted for a third of its sales, dipped 1% annually and marked the unit's third straight quarter of negative growth. Its advertising revenue, which accounted for 16% of its sales, rose 25% -- but that compared poorly with its 55% growth a year ago.

However, Tencent disclosed the growth of its "fintech and business services" segment -- which includes WeChat Pay, its wealth management services, and Tencent Cloud -- for the first time. Revenue from that unit soared 44% annually, accounted for a quarter of Tencent's sales, and offset some of the softness in its gaming and advertising businesses.

Tencent's operating margin also expanded annually, from 42% to 43%, as its net profit rose 17%. Tencent didn't provide any guidance, but its revenue and earnings growth should stabilize as its fintech and cloud units expand.

Which BAT stock is still worth buying?

Baidu trades at a much lower multiple than Alibaba or Tencent, but it deserves to stay in the penalty box until its core advertising business recovers. Alibaba and Tencent trade at 26 and 25 times forward earnings, respectively.

Alibaba looks cheaper than Tencent relative to its growth, but Tencent's growth could accelerate quickly as the fintech unit grows and its gaming business recovers with the launches of new games. It's a close call, but I think Alibaba's stronger core business -- which isn't affected by the fickle advertising and gaming markets -- makes it the best BAT stock to buy.