AOL Inc suffered sharp declines in quarterly advertising sales and dial-up subscriptions, driving overall revenue down 26 percent and showing the struggling Internet company has yet to turn the corner.

Chief Executive Tim Armstrong has been trying to transform the company, known for its dial-up Internet access business, into a media and entertainment powerhouse. He repeated on Wednesday that he expected AOL to show growth in its display and branding advertising sales later this year.

He declared that 2011 would be the year we stop working on the turnaround and start working on the comeback, saying the sales team has been built up to a point that will allow us to get to second half growth in 2011.

But Armstrong has found it difficult to win over investors, who pushed the stock down nearly 2 percent on Wednesday. The shares are down about 14 percent in the last three months, underperforming the media sector as well as the broader Standard & Poor's 500 index.

The results were fine, but the bottom line expectation for 2011 was replay of last quarter. That was a little disappointing, said Ken Sena, an analyst with Evercore Partners. It's requiring a lot of patience from investors. But I think the strategy is a good one given the options available to them.

AOL reported fourth-quarter earnings of $66.2 million, or 61 cents a share, as it lowered expenses. In the period a year ago, it earned $1.4 million or 1 cent a share. That period included $106 million in restructuring costs.

Excluding items, AOL's earnings were 70 cents a share, stronger than the 46 cents a share Wall Street had forecast, largely due to lower-than-expected expenses and a more favorable tax rate, analysts said.

For the fourth quarter, advertising revenue fell 29 percent to $331.6 million on declines in search, display and third-party ads. Subscription revenue fell 23 percent to $235.9 million.

Overall, revenue fell 26 percent to $596 million. While that surpassed the $587.5 million analysts polled by Thomson Reuters I/B/E/S had expected, the sharp drop reflects the troubles AOL is having in a web advertising business dominated by Google Inc.

Google, which has been the search market leader for a decade, reported nearly 30 percent gains in both profit and revenue when it reported quarterly earnings in January.

AOL was spun off from Time Warner Inc a little more than a year ago. Since then, as a stand-alone company, AOL has been immersed in a blur of sales, launches and acquisitions, including purchasing the influential technology blog TechCruch for about $30 million.

The company committed $50 million to build out Patch, a network of local community sites totaling 500 this year. More recently, it redesigned its home page and has reached tie-ups with celebrities such as Heidi Klum and Gisele Bundchen.

Time Warner on Wednesday reported better-than-expected earnings and revenue. Its shares rose 8 percent, while AOL fell 1.6 percent, or 38 cents, to $23.47 on the New York Stock Exchange.

(Reporting by Paul Thomasch; Editing by Phil Berlowitz)

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