UPDATE 2-Shanda profit down, shares fall on tax rate

(Recasts, adds company details, analyst comments, byline)

By Amanda Beck

SAN FRANCISCO, May 27 (Reuters) - China's Shanda Interactive Entertainment Ltd (SNDA.O) posted on Tuesday a drop in quarterly profit and its stock fell 3 percent, which one analyst attributed to concerns about an increased company tax rate.

The online gaming company reported first-quarter net income of 288.8 million yuan ($41.2 million), or 56 cents per diluted American depositary share, down from a profit of 448.8 million yuan in the year-ago period.

First-quarter investment income fell to 2.8 million yuan ($400,000) from 249.8 million yuan a year ago, when the company sold its stake in Chinese Internet portal Sina Corp (SINA.O), Pali Capital analyst Tian Hou said.

Shanda operates casual and role-playing games online, where thousands of players compete in a virtual world. Its active paying accounts increased to 6.03 million in the first quarter, up 19.3 percent over the previous quarter.

Fueled by growing demand, net revenue rose 46.5 percent to 779.8 million yuan ($111.1 million). Net revenue increased 9.2 percent over the previous quarter, above the company's February forecast of 6 percent to 9 percent growth.

Wall Street analysts, on average, had forecast a profit of 50 cents per ADS, out of a range of 41 cents to 57 cents, on revenue of $106 million, according to Reuters Estimates.

Shares of Shanda fell 3.1 percent to $34.20 in after-hours trade, after closing up $1.44, or 4.25 percent, at $35.30 in Nasdaq trade on Tuesday.

Investors may have responded negatively partly because Shanda said in its news release that it was preparing for a 25 percent tax rate newly mandated by Chinese law, Hou said.

However, the Shanghai-based company did not explain that Shanda and other high-tech firms will be eligible to apply to the national government for lower tax rates, Hou said.

"The company needs to make it clear that 25 percent is not the final tax rate, just the theoretical, highest point," Hou said. "What is crucial is tomorrow's guidance."

The company has planned for an investor conference call on Wednesday. (Editing by Carol Bishopric and Braden Reddall)