"We're ... working to determine the right ownership structure for AOL," said Time Warner head Jeff Bewkes in an earnings release.
AOL's ad sales dropped 20% in the quarter, or $109 million, which surpassed the 18% decline in the fourth quarter.
"Driving the decrease in advertising revenues were declines in sales of advertising on third-party Internet sites, as well as display advertising and paid-search advertising on AOL Network sites," according to the release.
Despite beating analysts' expectations, the Time Warner unit reported first-quarter profits down to 45 cents a share, excluding costs and gains from separating a cable-system unit and other items.
Separately, Time Warner is also in talks to buy back Google's 5% stake in AOL. Google, which has owned the stake since investing $1 billion in 2005, notified Time Warner in January that it was exercising a right to force Time Warner to take the Internet unit public, or buy back the stake.
Time Warner on Wednesday said it has the right, but not the obligation, to buy Google's interest with cash or shares.
In February, Bewkes explicitly said that spinning off all or part of AOL was a viable option for the New York-based company.
Seen as preparing for a spin off, Bewkes recently hired Google executive Tim Armstrong as the unit's chairman and chief executive, while also revising debt agreements that threatened to restrict the transfer of its assets.
Last month, an AOL insider told industry blogger Kara Swisher that Armstrong "would not have taken the job if the plans for a spin out of AOL were not in place ... The only catch is the poor economy, but even that should not prevent Time Warner from doing what's right to finally fix AOL."