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Tencent overtakes Alibaba as China's most valuable tech company

Tencent, the owner of popular social messaging app WeChat, overtook e-commerce giant Alibaba to become China's most valuable technology company on Thursday.

Data compiled by spreadbettor IG showed Tencent's market capitalization was at 1.9103 trillion Hong Kong dollars, or around $246.35 billion, at 10:40 a.m. HK/SIN, compared with U.S.-listed Alibaba's market capitalization of $242.04 billion.

Crossing that Rubicon followed Tencent on Wednesday soundly trouncing forecasts for its second quarter earnings amid strong growth in mobile gaming and advertising.

Total revenue for the second quarter came in at 35.69 billion yuan ($5.38 billion), jumping 52 percent on-year and beating a Thomson Reuters poll of analysts forecasting revenue of 33.2 billion yuan. Operating profit was at 14.33 billion yuan, up 43 percent from the year-earlier period.

Monthly active user accounts on Tencent's social WeChat/Weixin platform jumped 34 percent on year to 806 million.

That sent Hong Kong-listed shares of Tencent up 5.08 percent in morning trade on Thursday, pushing its market capitalization ahead of Alibaba's. On a year-to-date basis, Tencent is also the best-performing stock on Hong Kong's Hang Seng index, up 26.56 percent.

Analysts responded warmly to the earnings, offering a round of target price increases, citing Tencent's bet on dominating the online and mobile gaming space.

On-line gaming produced the bulk of the company's second quarter revenue. That segment's revenue grew 32 percent on-year to 17.124 billion yuan, driven particularly by smartphone games, which saw revenue more than double to 9.6 billion yuan for the quarter.

Brent Lewin | Bloomberg | Getty Images

Analysts cited robust performances from key titles, such as Honor of King and JX Mobile, and pointed to the outlook for more growth ahead.

In June, Tencent deepened its presence in the space by leading a consortium to acquire a majority equity stake in Finnish game-maker Supercell, which produced popular titles such as Clash of Clans and Clash Royale.

"Tencent's mobile game pipeline in second half 2016 and 2017 looks solid to us," said analysts John Choi and Alex Liu from Daiwa Capital Markets. "We see revenue upside from the monetisation of Supercell's vast China user base and the introduction of new genre games (such as location-based games)."

Choi and Liu estimated PC game revenue was up 8 percent on-year for the quarter, with gamer engagement level for Tencent's key PC game titles staying resilient for the quarter and across the summer playing season.

Daiwa stuck with a buy call on the stock, raising their target to HK$235 from HK$205.

Other analysts were also positive on Tencent's growth potential.

Richard Ko and Andie Wang from KGI said in a note to clients that they expected Tencent would continue monetizing through multiple mobile platforms, including its social networks, with growth also coming from online advertising in addition to mobile gaming.

They raised their target price to HK$250 from HK$210, keeping an outperform call on the stock.

But Tencent leapfrogging Alibaba in market capitalization didn't mean either company faced much competition for the top ranks of China's tech universe, including from another key player, Baidu.

"Tencent and Alibaba's fundamentals are much better than Baidu, in terms of the platform business model and also the monetization momentum currently," Marie Sun, a senior equity analyst at Morningstar, told CNBC by phone.

Sun said both Tencent and Alibaba offered a variety of internet services and content to their users from their respective platforms, particularly on mobile, while Baidu's key revenue generator remained its search business and online advertising.

For example, Tencent's famed WeChat social messaging app offered services including instant messaging, mobile payments and money transfers, as well as other services such as bill payments and transportation booking.

WeChat Moments lets users share images, text, music and articles, functioning like a news feed, similar to other social networks.

But while the growth outlook for Tencent remained positive, one bank was pointing to risks that could slow the stock-price rise of the Chinese social networking and messaging giant.

In a note, Nomura analysts warned that high market expectations could eventually dampen the stock price performance. But even then, Nomura raised its target price to HK$235 from HK$196, sticking with its Buy call.

Representatives from Tencent did not immediately respond to CNBC's request for comment.

An Alibaba spokesperson told CNBC by email that the Chinese e-commerce giant's strategy will not be guided by stock performance. "Alibaba has proven its unique competitive position and a strong foundation for sustainable growth," the spokesperson said.

Last week, Alibaba posted a better-than-expected 59 percent jump in quarterly revenue.

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