Aol is telling a good story, but Citi analyst Mark Mahaney isn’t buying it. AOL is probably the toughest Internet turnaround story, he says in a report today, citing “28% Y/Y decline in its Subscriber base and 38% Y/Y decline in its EBITDA.” He recommends people buy Yahoo, which “will almost surely revert to growth before AOL.”

Mahaney also notes that Aol was the only top 5 web property in the U.S. to have year over year declines in visitors.

On the upside, Aol’s management team is prohibited from large cash acquisitions: “Per the terms of an existing credit facility, AOL can use no more than $100MM a year in cash for the purpose of an acquisition. Given the relatively unsuccessful large acquisitions of AOL in recent years (e.g., Bebo for approximately $700MM), we interpret this M&A cash constraint as something of a good thing near-term for AOL.”

Barclays analyst Douglas Anmuth was similarly bearish on AOL a couple of weeks ago.