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Groupon shares down 22 percent, despite increased sales, profit

The daily-deals provider is watching its shares tank to under $6 as investors grow more concerned about its future.

After examining Groupon's second-quarter financial report yesterday, showing increased revenue and a profit, some might think that the company is on the right track. Judging by investor reaction, however, that doesn't appear to be the case.

In early morning trading, Groupon shares are down a whopping 22.4 percent to $5.86. At its worst point so far this morning, Groupon's stock hit an all-time low of $5.80. At its current level, Groupon shares are down 71 percent since the beginning of the year.

Groupon yesterday announced that sales in the second quarter were up 45 percent year-over-year to land at $568.3 million. And although it lost money last year, it actually posted a profit of $28.4 million in this year's second quarter.

Profits don't always impress investors, though. Wall Street was hoping Groupon would generate $574.8 million in revenue during the quarter. What's worse, the company's gross billings growth decelerated to just 47 percent, and dropped quarter over quarter for the first time ever, Citi analyst Mark Mahaney said in a research note to investors today. Mahaney also noted that the company's "core Daily Deal business is sharply slowing."

"All in, a sequential decline implies a rapidly deteriorating core business i.e. the Daily Deals business, and Groupon needs to act fast to fill up this hole with new initiatives such as Goods," Mahaney wrote. "Along similar lines, Groupon's Billings Per Active Customer have been declining sequentially for the past 3 quarters. This is an inherently negative trend as it implies that the core value proposition to consumers has been declining."

By contrast, Groupon doesn't sound particularly concerned. In a statement yesterday, Groupon CEO Andrew Mason said that there were good signs in the second quarter.

"We had a solid quarter despite challenges in Europe and continued investment in technology and infrastructure," Mason said in a statement. "We've deepened our relationships with a growing base of merchants and customers worldwide, demonstrating progress as we work to unlock the opportunity in local commerce."