AOL Inc. said Tuesday that it is evaluating whether to sell or shut down Bebo, the social-networking site it acquired for $850 million two years ago in a bid to reinvent itself by tapping into the social-networking craze.

"Bebo, unfortunately, is a business that has been declining and, as a result, would require significant investment in order to compete in the competitive social networking space," Jon Brod, executive vice president of AOL Ventures, said in a message to employees.

"AOL...