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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission file number: 000-27907

NETRATINGS, INC.
(Exact name of Registrant as specified in its charter)

        Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

        Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý    No o

        The aggregate market value of the voting stock held by non-affiliates of the Registrant, based on the closing price of the Registrant's Common Stock as quoted on the Nasdaq National Market on June 28, 2002, was $90,080,487.

        The number of shares of the Registrant's Common Stock outstanding as of February 28, 2003, was 33,655,811.

DOCUMENTS INCORPORATED BY REFERENCE

        Parts of the definitive proxy statement for the Registrant's 2003 Annual Meeting of Stockholders, which is to be filed with the Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Report, are incorporated by reference into Part III of this Report.

        Some of the statements contained in this Annual Report on Form 10-K (this "Report") are forward-looking statements, including but not limited to those specifically identified as such, that involve risks and uncertainties. The statements contained in this Report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding our expectations, beliefs, intentions or strategies regarding the future. All forward-looking statements included in this Report are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. These statements are based on current expectations and assumptions and involve known and unknown risks, uncertainties and other factors, which may cause our actual results to differ materially from those implied by the forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Important factors that may cause actual results to differ from expectations include those discussed elsewhere in this Report on Form 10-K under the heading "Risk Factors That May Affect Our Performance."

PART I

ITEM 1. BUSINESS

OVERVIEW

        We are a leading provider of Internet audience measurement and analysis in the United States and around the world. All of our products and services are designed to assist companies in making critical business decisions regarding their Internet strategies and initiatives.

        Our primary products and services include NetView, AdRelevance, @Plan, WebRF, Custom and Analytical Services, and MegaPanel. NetView, which is our original product, provides in-depth measurement of audience behavior for the World Wide Web and the digital media universe, including proprietary channels, instant messaging, media players, and other online applications. AdRelevance offers comprehensive and accurate information on online advertising expenditures, including where, when, how, and how much companies are advertising online. @Plan is a leading resource for demographic, lifestyle, and product preferences to guide advertisers, agencies, Web publishers, and others in their online marketing and media planning strategies. WebRF is an Internet reach and frequency planning tool that allows clients to evaluate the impact of a planned advertising campaign using detailed demographic information. Our Custom and Analytical Services offer customized research and advisory services from experienced industry experts. In February 2003, we announced our intention to launch our MegaPanel service in the United States and to expand the service internationally which will provide increased breadth and depth of Internet behavior and activity for the market research industry, including detailed e-commerce transaction information.

        Our products and services are currently sold directly in the United States, England, Germany, Italy, Spain, Sweden, the Netherlands, Switzerland, Australia, and Hong Kong. In France, Japan, and Brazil, our products and services are sold through our joint ventures. We have a highly diversified and global client base, including large and small companies in the media, technology, advertising, financial services, consumer products, retail, and travel industries. As of December 31, 2002, we had approximately 750 clients.

        In 1998 and 1999, we formed strategic relationships with Nielsen Media Research, the leading source of television audience measurement and related services in the United States, and ACNielsen, a leading global provider of market research information and analysis. We believe that our strategic relationships with Nielsen Media Research and ACNielsen, both of which are subsidiaries of VNU N.V., provide us with a unique opportunity to leverage their brands, expertise, and industry relationships to facilitate the rapid acceptance and deployment of our diverse portfolio of products and services.

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PRODUCTS AND SERVICES

        Since our founding until the second quarter of 2002, we primarily focused on selling our NetView service, also called AMS, or Audience Measurement Services. Commencing in the second quarter of 2002, as a result of acquisitions and internal product development, we began to offer additional products and services designed to meet specific Internet media and market research needs. These products and services allow us to offer companies much more detailed and complex solutions and information and to do so in a more timely manner. In addition, the increased amount of data that we collect enables us to expand the specialized consulting and analytical services that companies are increasingly seeking as Internet usage and commerce continue to grow around the world. Our products and services are primarily sold on an annual subscription basis. We believe that our comprehensive portfolio of products and services, which are all sold under the Nielsen//NetRatings brand, leaves us well positioned to become the standard for measuring the size, profile, activity, and behavior of Internet users around the world.

NetView

        Our NetView service, which includes syndicated and custom reports, provides detailed Internet audience information collected from our high-quality, representative panels of computer and Internet users. We currently operate NetView panels in thirteen locations around the world, including the three countries where we operate through joint ventures, and track over 70% of the global online activity. In addition to "at-home" panels, which measure Internet activity from the home computer, we also operate "at-work" panels, which collect data on Internet usage at the workplace, and "combo-panels", which measure both home and work activity and allow us to calculate the audience duplication to accurately report the true combined audience.

        In order to obtain an appropriately representative sample of the total Internet user population, our NetView panels are constructed using a process called random digit dialing, or RDD, which involves recruiting panel members by calling randomly selected telephone numbers. RDD is the cornerstone of the Nielsen methodology, which has been successfully established as the currency for television audience measurement. Telephone numbers are randomly and systematically selected with equal probability, with adjustments made to account for households with more than one phone number. Eligible households, namely those with a PC and Internet access, are recruited to participate in the panel. Those that agree to participate are mailed a membership packet that includes tracking software and installation instructions and are given a small incentive in the form of a savings bond for their participation. Once installed on a panelist's computer, our tracking software requires virtually no panelist intervention and software updates are automatic. All panelist data is automatically encrypted prior to transmission to ensure the privacy of panelist data.

        In connection with our panel recruitment process, each panelist is required to fill out a detailed questionnaire, providing background demographic information including age, gender, household income, geographic location, level of education, size of household, and job classification. To assure the statistical quality of our NetView panels, enumeration studies are conducted to determine the total size and demographic makeup of the Internet user population and are used as the basis for ensuring that sample behaviors are representative of the total audience population. In order to accurately gauge the size and shape of the rapidly changing Internet user universe, we conduct our independent enumeration studies on a quarterly basis.

        Our proprietary activity tracking and data collection technology gathers comprehensive and detailed information regarding computer and Internet user behavior, including sites and pages visited, time spent on each site, advertising exposure and effectiveness, and bandwidth usage data. In addition, the NetView service is designed to offer clients the most complete view of World Wide Web and digital media usage, including tracking of Web traffic, AOL proprietary channels, instant messaging

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applications, media players, wireless content systems, Web phones, connected games, weather applications, and shopping assistants. Our technology collects the same data in the same way, regardless of whether the user is accessing the Internet via a PC, a Macintosh platform, or other Java-enabled Internet access device.

        NetView provides customers with a variety of comprehensive weekly, and monthly reports on computer and Internet usage behavior. Our reports can be modified by clients, enabling them to manipulate data easily to meet their specific information requirements. Our easy-to-use myNielsen//NetRatings interface provides immediate access to various levels of detailed information, allows users to create and save their own reports, and enables "on-the-fly" custom queries on selected information. Clients are provided with two levels of information access, Quick Look reports and Select View reports. Our Quick Look reports provide customers with comprehensive pre-defined site rankings, Internet user behavior and demographic information, as well as detailed Internet advertising data. Our Select View reports allow customer queries to obtain detailed demographic targeting, audience profiles, trend information, and other data tailored to the customer's specific needs.

@Plan

        We offer Internet media planning products and services through our @Plan service, which we acquired in May 2002. The @Plan service offers advertisers, advertising agencies, Web publishers, and e-commerce marketers detailed demographics, lifestyle, brand and product preferences, and media consumption information to help them plan and implement successful online marketing and media strategies. @Plan's tools include @Plan Advertising and @Plan eCommerce.

        @Plan Advertising is a comprehensive advertising decision support and planning system providing deep lifestyle, brand and product preferences, and demographic profile information across a large number of advertising-supported Web sites. Internet advertisers and advertising agencies can query the system on various targets, such as demographic and/or buying behavior groups to better understand the most efficient and effective ways to reach those groups through the Internet. The system also allows web publishers to position their sites effectively against competitive sites and to efficiently drive advertising revenue by demonstrating the value of the site audience to advertisers or marketing partners.

        @Plan eCommerce builds on the capabilities of @Plan Advertising with features and data specifically designed for online retailers and consumer brand marketers. Online retailers and consumer brand marketers utilize the system to understand and track their competitive strengths and weaknesses overall and against key market segments. Online retailers can also use this information to develop more effective and cost-efficient customer acquisition and retention strategies by understanding which Web sites deliver the highest concentration of their target audience. By providing both online and off-line data, the @Plan eCommerce system also allows online retailers and consumer brand marketers to help maximize multi-channel sales efforts by profiling online, catalog, and in-store audiences and understanding where they overlap, thereby informing their advertising strategy in both traditional and online markets.

AdRelevance

        We offer advertising measurement products and services through our AdRelevance service, which we acquired in April 2002. AdRelevance tracks competitive online advertising and advertiser data for thirteen broadly defined categories including, but not limited to, automotive, computer hardware, computer software, telecommunications, financial services, travel, retailing, and Web media.

        The AdRelevance technology systematically and continuously searches commercial Web sites and captures detailed data about advertising banners, promotions, and rich media. AdRelevance's intelligent agent technology sends out approximately six million probes a week and continuously evaluates more

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than 600,000 unique Web pages to provide in-depth advertising tracking information. Once captured, the data are warehoused, classified, and statistically analyzed.

        By using the AdRelevance technology, our customers can query the AdRelevance database and generate Web-based reports on demand. This enables customers to monitor competitors' marketing activities, plan more effective online advertising campaigns, and evaluate campaigns in real time. Customers can gain access to up-to-date intelligence about their competitors' online marketing communications programs, enabling them to quickly and easily compare and report information by a wide range of criteria including advertiser, product, message, type, industry, technology, and creative content.

WebRF

        WebRF offers advertisers, advertising agencies, and Web publishers a comprehensive reach and frequency tool for planning and evaluating the impact of advertising on the Internet, using terminology and analysis capabilities comparable to those in traditional media advertising. Through the WebRF software, which was designed in partnership with Interactive Market Systems (IMS), a provider of media planning and analysis software to the advertising industry, advertisers, advertising agencies, and Web publishers can develop the analyses necessary to compare online advertising reach with delivery of other media, map advertising campaigns for specified target markets, and track how effectively advertising budgets are being managed.

        WebRF provides calculations based upon actual respondent-level data by using Internet users' online activity captured through our NetView service. WebRF offers a broad range of standard reach and frequency analyses, including use of consumer demographics and targeting, category and subcategory analysis, effective reach and frequency estimates. WebRF reports on a user-selected competitive set of online media properties and GRP (gross rating point) delivery in total and against desired targets. WebRF, which was launched in 2002, is currently available in eleven countries worldwide, including the United States, the United Kingdom, France, Spain, Italy, Germany, and Sweden.

        In addition to our core WebRF product, we also offer our customers the ability to subscribe to Custom WebRF. Custom WebRF extends the WebRF tool into the world of mid-campaign and post-campaign evaluation for online advertising. By combining our NetView panel data with the customer's own ad server data, Custom WebRF allows the advertiser or publisher to assess the success of the advertising plan as a marketing campaign is being implemented. By allowing clients to monitor their online marketing initiatives during the middle of a campaign, publishers and advertisers can work together to effectively adjust the campaign. In addition, after an online campaign is complete, our clients can determine the effectiveness of their marketing schedule in meeting the advertising objectives.

Custom and Analytical Services

        As we have increased our portfolio of syndicated products and services, clients have increasingly relied on us to provide custom research and analytical services. These custom research and analytics services are designed to help clients better utilize and leverage our services with their specific media research and market research goals and objectives. Our dedicated analytics team provides in-depth specialized advice to subscribers of our NetView, AdRelevance, @Plan, and WebRF products and services. In addition, we anticipate that our MegaPanel service, which will offer companies a very broad set of research findings on Internet user behavior, will also present additional opportunities to guide

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companies in addressing their specific strategic challenges. Examples of the types of custom research and analytics projects that we have conducted in recent months include the following:

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Competitive Analysis: The creation of detailed competitive reports that clients can generate with one keystroke as soon as new NetView and/or AdRelevance monthly data are released.



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Cross-Media Analysis: The integration of NetView and WebRF data with advertisers campaign data to determine optimal online media allocations.



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Commerce Analysis: Customized conversion analysis for clients more focused on tracking transactions data, as opposed to Web site traffic.



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Survey-Based Research: The extension of @Plan behavioral questions to the localized needs of clients.

MegaPanel

        In February 2003, we announced plans to launch our MegaPanel service in the United States and to expand the service internationally based on a sample of more than one million Internet users in the United States, France, Germany, and the United Kingdom. Representing a broad cross-section of home, work, and university online users, our MegaPanel service will allow us to provide increased breadth and depth of data, integration of online and off-line datasets, and more advanced custom reporting. We believe that our MegaPanel service will complement our NetView service to assist clients in integrating the Internet into their global marketing strategies.

        Our MegaPanel service is designed to offer a number of key benefits for market researchers seeking in-depth information on online consumer behavior. For example, MegaPanel will be able to deliver detailed information regarding e-commerce transactions, including what people are buying online, what sites people are using for online shopping, and the amount shoppers are spending online. The MegaPanel will also be able to provide clients with important analyses relating to smaller Web sites which may not be available in NetView or our other products and services. In addition, given the size of the panel, MegaPanel will also offer survey capabilities to help clients better understand consumer attitudes and behavior. By administering real-time customized surveys, focusing, for example, on areas such as brand awareness, online-off-line consumption, and customer satisfaction, we can provide a robust understanding of the relationship between the online and off-line consumer.

        Panelists for our MegaPanel service are recruited through online survey and sweepstakes offers. As with our NetView panels, our tracking software requires virtually no panelist intervention and software updates are automatic. The information we collect, which is linked to demographic profiles of Internet households, will be used to produce comprehensive syndicated and custom reports regarding Internet behavior and activity across the Internet. To enhance the statistical quality of our panels and the information we collect, our MegaPanel service will be weighted to our NetView panels, which are recruited through random digit dial procedures.

        We expect our MegaPanel service to be available in the United States in the middle of 2003. We currently offer MegaPanel products in France, Germany, and the United Kingdom, and the scope of these services will be expanded during 2003.

STRATEGIC RELATIONSHIP WITH VNU

        VNU N.V. is a global leader in market research, providing measurement and analysis of marketplace dynamics, consumer behavior, and audience measurement. We believe that our strategic relationship with VNU and its subsidiaries, particularly Nielsen Media Research and ACNielsen, provides us with a unique opportunity to leverage their brand, industry relationships, and overall expertise in order to expand our products and services around the globe. Since 1999, we have marketed

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our services under the Nielsen//NetRatings brand. In addition to our strategic relationships, VNU, through its subsidiaries, also controls a majority of our outstanding voting stock and has the right to elect a majority of our Board of Directors.

        For the past fifty years, Nielsen Media Research's core business has been to provide high-quality comprehensive audience viewing information on the television industry. The Nielsen ratings are vital to television program production, distribution, and scheduling decision-making, and the currency for transactions between buyers and sellers of television advertising time. In October 1998, we formed a strategic relationship with Nielsen Media Research to develop and market Internet audience measurement products and services in the United States and Canada using our technology with Nielsen Media Research's proprietary panel methodology. In March 1999, we launched our first Nielsen//NetRatings product offering, which constituted an Internet audience panel product based on the Nielsen Media Research audience sampling methodology.

        Under our agreements with Nielsen Media Research, Nielsen Media Research provides for the development and maintenance of panels in the United States that generate the data for our NetView service. We are responsible for the management, support and ongoing development of the data collection and reporting system. In addition, an operating committee, consisting of two representatives from Nielsen Media Research and two representatives from NetRatings, was formed to address issues such as product quality control, panel size issues, and other panel-related issues. We pay Nielsen Media Research ongoing fees for the costs of maintaining the NetView panels and costs associated with the expansion of such panels. These fees are charged at the same rates that Nielsen Media Research charges its own internal divisions, which are based on Nielsen Media Research's actual costs plus an allocated portion of its overhead costs.

        Under our agreements with Nielsen Media Research, Nielsen Media Research is responsible for marketing the products and services to traditional media customers, such as broadcast television networks, nationally-circulated magazines, news agencies, advertising agencies, and other customers in the United States and Canada that are agreed to from time to time by Nielsen Media Research and us. We are responsible for selling the products and services to publishers, Internet-based businesses, Fortune 2000 corporations and financial institutions. Under our original arrangement with Nielsen Media Research, we paid Nielsen Media Research commissions based on the sales made by them. In 2002, we amended our agreement with Nielsen Media Research to provide that, in lieu of paying sales commissions, we will pay the actual costs associated with the operation and maintenance by Nielsen Media Research of a sales force dedicated to selling our products and services.

        ACNielsen, which was founded over 75 years ago, is a leading provider of media research services outside North America. It is also a global leader in providing business information, analysis, and insights to consumer packaged goods companies, their brokers and retail organizations. ACNielsen also provides television audience measurement services outside of the United States, to customers in over 100 countries. In September 1999, we established ACNielsen eRatings.com, a joint venture with ACNielsen, to develop and maintain audience measurement panels and to market our products and services in international markets. From the formation of the joint venture until May 2002, we had a 19.9% voting interest in the venture and ACNielsen had a 80.1% voting interest in the venture. In May 2002, we acquired from ACNielsen the remaining 80.1% interest in ACNielsen eRatings.com that we did not already own for $9.1 million in common stock. In connection with this transaction, we also entered into a services agreement with ACNielsen pursuant to which ACNielsen will provide us with marketing, panel management, and back-office services for a period of five years.

INTERNATIONAL OPERATIONS

        We believe that offering our customers the Nielsen//NetRatings products and services with data from around the world is a critical component in establishing ourselves as the global standard for

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Internet audience measurement and analysis. We currently offer our products and services in the following thirteen locations around the world: the United States, the United Kingdom, France, Germany, Italy, Spain, Sweden, the Netherlands, Switzerland, Brazil, Australia, Hong Kong, and Japan. As a result, we currently track over 70% of the Internet usage around the world. During 2001 and 2002, however, we discontinued operations in a number of international markets that were not viewed by us as critical markets.

        We have historically offered our audience measurement products in foreign countries through joint ventures with leading local market research and information services companies. As described above, prior to May 2002, we had a joint venture with ACNielsen to develop and maintain audience measurement panels and to market our products and services in various international markets. We currently have joint ventures in France with Mediametrie, in Japan with TransCosmos and other investors, and in Latin America with Ibope. We have licensed our proprietary data collection and reporting technology to these joint ventures, and each of these joint ventures is responsible for building and maintaining audience measurement panels and selling our products and services in the specified territory. Revenue from our joint ventures' Internet audience measurement services are allocated between NetRatings and the joint ventures depending on the location of the customer and the location of the panel whose data is used in the service.

        As of December 31, 2002, we held a 50% ownership interest in Mediametrie eRatings.com, our French joint venture, and the remaining ownership interest was held by Mediametrie. As of December 31, 2002, we held an ownership interest in NetRatings Japan, our Japanese joint venture, of approximately 49%, and the remaining ownership interest was held by TransCosmos and other investors. As of December 31, 2002, we held a 49% ownership interest in Ibope eRatings.com, and the remaining ownership interest was held by Ibope.

        During 2002, we also expanded our international operations by acquiring a controlling interest in NetValue S.A., an international provider of Internet audience behavior measurement services. In August 2002, we acquired a 52% interest in NetValue through direct stock purchases from certain NetValue shareholders who in return received a combination of cash and shares of our common stock. In addition, on August 12, 2002, NetValue's board was reconstituted to provide NetRatings with majority control of NetValue's board. In October 2002, we acquired additional shares of NetValue in a simplified all-cash take-over bid. As of December 31, 2002, we owned approximately 86% of the capital and 87.5% of the voting rights of NetValue. This acquisition has enabled us to expand our international operations significantly, as well as to integrate methodologies and technologies into our operations.

CUSTOMERS

        As of December 31, 2002, approximately 750 clients subscribed to the products and services offered by us and our joint ventures. Our global client base is a diverse group of large and small companies in the media, technology, advertising, financial services, consumer products, retail, and travel industries. The users of our products and services at our client companies hold diverse positions, demonstrating the importance of online media and market research to a company's overall strategy and development. In addition to marketing and business development executives, our users include chief executive officers and presidents, and operations, strategic planning, and information technology executives. No client accounted for more than 10% of our revenues in 2002.

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        The following table is a representative list of our clients in each of our principal customer sectors:

SALES AND MARKETING

        We sell our products and services in the United States through a direct sales force. Our direct sales force includes sales representatives employed by Nielsen Media Research who are dedicated to selling our products and services. Our sales representatives are primarily located at our executive offices in Milpitas, California and New York, New York, and we also maintain local representatives in various locations throughout the United States. Internationally, we sell our products and services through a direct sales force as well as through our joint venture partners in their respective markets. Our sales representatives receive a base salary and are eligible for commissions based on revenue and sales goals.

        Our primary marketing objectives are to cross-market new products and services to our global clients to leverage and build upon Nielsen//NetRatings' brand awareness throughout our target audiences. To achieve these goals, we engage in a number of marketing activities, including direct e-mail campaigns, conference presentations, industry tradeshow participation, involvement with industry organizations such as the Interactive Advertising Bureau, Online Publishers Association, Direct Marketing Association and Advertising Research Foundation, and aggressive public relations. We maintain standing arrangements for the use of our data with key business and trade press including Reuters, The New York Times, USA Today, San Jose Mercury News, Hollywood Reporter, Boston Globe, CNET, and numerous other media outlets. We provide the media with timely insights regarding current events and identify emerging Internet trends, generating valuable press coverage. Our analysts are regularly featured on television and radio broadcasts, including segments on CNBC, CNN, CBS Marketwatch, and NPR.

INTELLECTUAL PROPERTY

        We regard the protection of our proprietary technology and information as important to our future success and ability to compete effectively in our markets. We rely on a combination of patent, copyright, trademark, and trade secret laws, as well as confidentiality agreements and licensing arrangements, to establish and protect our proprietary rights. The steps we have taken or will take in the future may not, however, be sufficient to protect our technology and information from infringement or misappropriation, or to deter independent development of similar or superior technologies by others. In addition, the laws of some foreign countries may not protect our proprietary rights to the same extent as do the laws of the United States. Litigation may be necessary in the future to enforce our intellectual property rights, and any such litigation could result in substantial expenses as well as the diversion of resources from the operation of our business.

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        We seek to obtain the issuance of patents and the registration of our trademarks and service marks in the United States and in selected other countries. In May 2002, NetRatings and Jupiter Media Metrix, Inc. entered into a settlement agreement pursuant to which Jupiter Media Metrix agreed to dismiss with prejudice the patent infringement action it had filed against NetRatings in March 2001. In connection with the settlement, we also acquired patents and patent applications relating to computer use tracking. As a result, we currently have two issued patents in the United States with regard to our computer use tracking technology (U.S. Patent No. 5,675,510 and U.S. Patent No. 6,115,680). In addition, patents for the technology covered by U.S. Patent No. 5,675,510 have also been issued in Japan, Canada, Australia, and Mexico, and we have patent applications pending in other jurisdictions.

        In addition to the computer use tracking patents and patent applications described above, we also have other pending patent applications which relate to other aspects of our proprietary technology. Furthermore, NetValue has a number of pending patent applications in various jurisdictions which relate to tracking online audience activity and behavior.

        Despite the efforts we have taken, others may claim that we have misappropriated a trade secret or infringed a patent, copyright, trademark, or other proprietary right belonging to them with respect to past, current, or future technologies. Any of those claims, whether meritorious or not, could be time-consuming, result in costly litigation, may distract management from other tasks of operating the business and may result in the loss of significant rights or require us to enter into royalty or licensing agreements. Royalty or licensing agreements might not be available on terms we find acceptable or at all. As a result, any such claim could have a material adverse effect upon our business, results of operations, and financial condition.

TECHNOLOGY AND OPERATIONS

        Our data collection, retrieval, and processing systems and software have been designed utilizing well-known industry standards for hardware and software data architecture and infrastructure. The architecture adheres to numerous standard programming languages, including hypertext machine language, or HTML, Java and C++, and network protocols, including hypertext transfer protocol, or HTTP. In addition, we believe that our system architecture is flexible and powerful enough to allow for continued growth in our portfolio of products and services.

        Our hardware systems are hosted at our facilities in Milpitas, California, New York, New York, Seattle, Washington, and at two off-site, professionally managed, computer centers in San Jose, California and Paris, France. Backup procedures are built into the processing environment in order to reduce downtime in the event of outages or catastrophic occurrences.

        In order to remain competitive in the current environment, we anticipate that we will continue to devote significant resources to product development and the development of delivery technology.

COMPETITION

        We believe that the primary competitive factors determining success in our markets include:

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the ability to provide high-quality, accurate, and reliable data regarding Internet audience behavior and activity in a timely manner;



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the breadth and depth of the product and services offered and their flexibility and ease of use;



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the availability of data across various geographic areas;



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the ability to offer high-quality analytical services based on the Internet audience measurement information;



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the ability to offer products and services that meet the changing needs of our customers; and



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the prices that are charged for the products and services, as well as the general economic conditions.

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        We believe that we compete favorably with respect to each of these factors.

        We face competition in the United States and abroad for each of our products and services. We face direct competition from companies, such as comScore Networks, that provide panel-based Internet measurement services. We also compete with numerous providers of Web analytics solutions, including NetIQ, WebSideStory, and Red Sheriff, that offer products measuring audience visits by monitoring the Web site's server. In addition, we face competition from companies that offer survey research capabilities relating to online behavior and activity, such as Harris Interactive, Greenfield Online, and NFO. We compete less directly with the providers of syndicated and custom research on Internet behavior and commerce. Finally, we may face increased competition from individual Web sites that develop an independent method of measuring their own audience and from other companies that develop new or alternative audience measurement technologies.

        We expect competition to intensify because of the business opportunities presented by the growth of Internet usage and Internet commerce around the world. Competition may also intensify as a result of industry consolidation, because of technological advancements in the way to measure Internet behavior and activity, or because some of our competitors may be able to provide additional or complementary services. In addition, many of our competitors have longer operating histories, larger customer bases and/or greater marketing resources than we have. Increased competition may result in reduced operating margins, loss of market share and diminished value in our services, as well as different pricing, service, or marketing decisions.

EMPLOYEES

        As of December 31, 2002, we had 259 full-time employees, including the employees of NetValue. Our joint ventures in France, Japan, and Brazil employed an additional 46 full-time employees as of December 31, 2002. Our employees in the United States are not covered by a collective bargaining agreement. Outside of the United States, we are subject to extensive regulation with respect to our employees in various jurisdictions. We have never experienced an employment-related work stoppage and consider our employee relations to be good.

AVAILABLE INFORMATION

        We make available on our website (http://www.nielsen-netratings.com) under "About Us"—"Investor Relations"—"SEC Filings", free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such material with the Securities and Exchange Commission.

ITEM 2. PROPERTIES

        Our primary executive offices in the United States are located in Milpitas, California, where we lease approximately 40,000 square feet, and New York, New York, where we lease approximately 12,000 square feet. We also lease office space in Seattle, Washington.

        Outside of the United States, our office space is leased primarily through ACNielsen. Our joint ventures also lease office space in their respective international markets.

ITEM 3. LEGAL PROCEEDINGS

        Information regarding legal proceedings is set forth in Note 9 of the Notes to Financial Statements under the heading "Litigation" which information is hereby incorporated by reference.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2002.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Price Range of Common Stock

        NetRatings' common stock is quoted on the Nasdaq National Market under the symbol "NTRT". The following table sets forth the range of high and low closing sales prices for each period indicated. The prices appearing in the tables below reflect over the counter market quotations, which reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. During the periods indicated, the Company has not affected any stock split.

Dividend Policy

        We have not declared or paid any cash dividends on our common stock and presently intend to retain our future earnings, if any, to fund the development and growth of our business and, therefore, do not anticipate paying any cash dividends in the foreseeable future.

Holders of Common Stock

        As of February 28, 2003, there we approximately 101 stockholders of record of our common stock. Because many of our shares are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

Equity Compensation Plan Information

        Information for our equity compensation plans in effect as of December 31, 2002, is as follows:

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ITEM 6. SELECTED FINANCIAL DATA

        The following selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the notes thereto included elsewhere herein:

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

        We are a leading provider of Internet audience measurement and analysis in the United States and around the world. All of our products and services are designed to assist companies in making critical business decisions regarding their Internet strategies and initiatives. We have a highly diversified and global client base, including large and small companies in the media, technology, advertising, financial services, consumer products, retail, and travel industries. As of December 31, 2002, we had approximately 750 clients. In 1998 and 1999, we formed strategic relationships with Nielsen Media Research, the leading source of television audience measurement and related services in the United States, and ACNielsen, a leading global provider of market research information and analysis. We believe that our strategic relationships with Nielsen Media Research and ACNielsen provide us with a unique opportunity to leverage their brands, expertise and industry relationships to facilitate the rapid acceptance and deployment of our diverse portfolio of products and services.

        During 2002, following the mutual termination of an Agreement and Plan of Merger with Jupiter Media Metrix, Inc., we completed a number of acquisitions that expanded our portfolio of products and services in the United States and abroad. On April 9, 2002, we acquired substantially all the assets of the AdRelevance online advertising expenditure measurement division of Jupiter Media Metrix Inc. for $8.3 million in cash. The assets acquired include the AdRelevance suite of services and related patent applications, trademarks, and copyrights, associated contracts, accounts receivable balances, and related deferred revenue balances.

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        On May 6, 2002, we acquired substantially all the assets related to DoubleClick's @Plan unit for $18.1 million in cash and stock. The assets acquired include the @Plan suite of services and related trademarks and copyrights, associated contracts, accounts receivable balances, and related deferred revenue balances.

        On May 7, 2002, we acquired, from ACNielsen Corporation, the remaining 80.1% interest in ACNielsen eRatings.com that we did not already own for $9.1 million in stock. Separately on May 7, 2002, we acquired selected assets from Jupiter Media Metrix related to their European Internet audience measurement services for $2 million in cash, allowing us to further expand our global customer base. Also on May 7, 2002, we and Jupiter Media Metrix entered into a settlement agreement under which Jupiter Media Metrix agreed to dismiss with prejudice the patent infringement action it filed against us in March 2001. As part of the settlement agreement, we paid Jupiter Media Metrix $15 million in cash and acquired from Jupiter Media Metrix its patents for computer use tracking (United States Patent Nos. 6,115,680 and 5,675,510), related patent applications and all patents issuing from such applications, and related materials.

        On August 5, 2002, we announced the acquisition of 52% of NetValue's outstanding common stock, which was completed on August 9, 2002 through direct purchases from certain NetValue stockholders for a price of two Euros per NetValue share. On August 12, 2002, NetValue's board was reconstituted to provide NetRatings with majority control of NetValue's board. NetValue is a French company traded on the "Nouveau Marche" of the Euronext Paris exchange whose business is focused in the international Internet media and market research industries. In exchange for 52% of NetValue's outstanding common stock, we paid $7.1 million in cash and issued 266,000 shares of our common stock to certain NetValue common stockholders. On October 7, 2002, we commenced a simplified all-cash take-over bid to acquire the outstanding shares of NetValue that we did not already own for a price of two Euros per NetValue share. On November 4, 2002, the Conseil des Marches Financier, Paris, France, issued a statement announcing that we had acquired 2,858,000 shares of NetValue in the simplified all-cash take-over bid, which ended on October 28, 2002. As of December 31, 2002, we owned 8,011,000 shares of NetValue, representing approximately 86% of the capital and 87.5% of the voting rights of NetValue.

        We currently offer our products and services in thirteen locations around the world. During 2002, we discontinued operations in a number of international markets that were not viewed by us as critical markets. In France, Japan, and Brazil, our products and services are sold through joint ventures. As of December 31, 2002, we held a 50% ownership interest in Mediametrie eRatings.com, our French joint venture, and the remaining ownership interest was held by Mediametrie. As of December 31, 2002, we held an ownership interest in NetRatings Japan, our Japanese joint venture, of approximately 49%, and the remaining ownership interest was held by TransCosmos and other investors. As of December 31, 2002, we held a 49% ownership interest in Ibope eRatings.com, and the remaining ownership interest was held by Ibope. Revenue from our joint ventures' Internet audience measurement services are allocated between NetRatings and the joint ventures depending on the location of the customer and the location of the panel whose data is used in the service. We use the equity method to account for our joint ventures.

        We generate revenues primarily from the sale of our Internet audience measurement products and services. Our products and services include both syndicated products and customized products. We primarily sell our syndicated products and services on an annual subscription basis and bill our clients in advance, typically on an annual or quarterly basis. We recognize revenue from the sale of our syndicated products and services ratably over the term of the subscription agreement. Prepaid subscription fees are recorded as deferred revenue until earned. Revenue from customized products and services is recognized in the period in which the product or service is provided. Therefore a significant portion of revenue recognized in any period results from the amortization of deferred

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revenue balances. We also derive a portion of our revenue from royalty payments from our joint venture partners.

        We have a limited operating history upon which investors may evaluate our business prospects. We have incurred net losses since our inception, and as of December 31, 2002, our accumulated deficit was $94.3 million. We expect to continue to invest in enhancing our products and service offerings, including investment in our MegaPanel service. As a result, we expect to continue to incur net losses for the foreseeable future.

Critical Accounting Policies and Estimates

        Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, our management evaluates its estimates and judgments, including those related to bad debts, investments, income taxes, financing operations, contingencies, and litigation. Our management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the result of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

        Our management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its financial statements:

Revenue Recognition

        We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101), as amended by SAB 101A and 101B. SAB 101 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed and determinable; and (4) collectibility is reasonably assured. Determination of criteria (4) is based on management's judgment regarding the collectibility of those fees. We primarily sell these products and services pursuant to one-year subscription agreements and bill our customers in advance, typically on a quarterly or annual basis. We recognize revenue from the sale of our information and analytical products and services ratably over the term of the subscription agreement. Prepaid subscription fees are recorded as deferred revenue until earned. If a contract's collectibility comes into question, revenue recognition is discontinued until collectibility is reasonably assured. This determination is based on our management's judgment and could adversely affect both revenue and deferred revenue.

Bad Debt

        We maintain allowances for doubtful accounts for estimated losses resulting from the inability of customers to make contractually required payments. If the financial conditions of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required and such allowances are based on management's judgment.

Legal Contingencies

        We are currently involved in certain legal proceedings as discussed in Note 9 of our financial statements. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses, in accordance with FAS 5. A determination of

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the amount of reserves required, if any, for these contingencies are made after careful analysis of each individual case. We do not believe the outcomes to these matters will have a material adverse effect on our financial position. Nonetheless, it is possible that future results of operations for any particular quarterly or annual period could be materially affected by changes in our assumptions or the effectiveness of our strategy related to these proceedings.

Goodwill and Intangible Assets

        We recorded goodwill and intangible assets during 2002 in connection with our acquisitions. Those intangible assets not deemed to have an indefinite life are amortized over their estimated useful lives, which range from 1 to 13 years. In accordance with SFAS No. 142, goodwill and indefinite-lived intangibles are not amortized, but are reviewed at least annually for impairment. We performed our annual evaluation of goodwill and intangibles as of December 1, 2002 and no impairment was indicated. We will reassess the carrying value of goodwill and intangible assets each year as of October 1, unless indicators of impairment become apparent earlier.

Investments

        We hold minority interests in companies having operations or technology in areas within or adjacent to our strategic focus. These entities are non-publicly traded companies whose value is difficult to determine. For those investments accounted for based on the cost method, we record an investment impairment charge when we believe an investment has experienced a decline in value that is other than temporary. For those investments accounted for based on the equity method, we reduce our investment in accordance with our equity in each joint venture's loss and record a corresponding loss on joint ventures in our statement of operations. The equity basis is adjusted for any additional capital contributions or commitments. Future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments and such amounts that may not be reflected in an investment's current carrying value, thereby possibly requiring an impairment charge in the future.

Results of Operations

        The following table sets forth for the years indicated certain financial data as a percentage of revenue:

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        The following table sets forth operating results for each of the four quarters ended December 31, 2002 and 2001:

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

        Revenue.    We generate revenue primarily from the sale of our Internet audience measurement products and services. We typically sell these services pursuant to one-year subscription agreements and bill our customers in advance, usually on an annual or quarterly basis. We also derive a portion of our revenue from our joint venture partners.

        Revenue increased 26% to $29.7 million for the year ended December 31, 2002 from $23.5 million for the year ended December 31, 2001. The increase in revenue was primarily due to the acquisitions during the second and third quarters of 2002. These increases were partially offset by the decrease in the amortization of deferred revenue as a result of an overall decline in contract sales due to a deteriorating economy. For the year ended December 31, 2002:

•

our global Internet audience measurement products and services increased to 85% of our revenue as compared to 73% for the year ended December 31, 2001, primarily due to the acquisitions during 2002;



•

our suite of custom and analytical services comprised 11% of the revenue as compared to 18% for the year ended December 31, 2001; and



•

our international royalties decreased to 4% of the revenue as compared to 9% for the year ended December 31, 2001, primarily due to the acquisition of eRatings during the year which eliminated royalties received from them.

        As of December 31, 2002, approximately 750 customers worldwide subscribed to our products and services. Our global contract renewal rate was 64% for the fourth quarter of 2002 compared with a 53% renewal rate for the fourth quarter of 2001. Our global average sales price was $60,000 for the fourth quarter of 2002 compared with $48,000 for the fourth quarter of 2001. During the year ended December 31, 2002, no customer accounted for more than 10% of our revenue.

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        Cost of Revenue.    Cost of revenue consists primarily of expenses related to the recruitment, maintenance, and support of our Internet audience measurement panels, which are expensed as they are incurred. Cost of revenue also includes data collection costs for our products and services and operational costs related to our data center. Accordingly, such expenses are not matched with any revenue or subscriptions generated in a given period and are higher in periods in which we are involved in significant panel development activities. Also included in cost of revenue are the data acquisition costs related to our joint ventures, which are recognized ratably over the term of the customer's subscription agreement, as the data is provided, as well as the royalty fees associated with certain data partnering agreements.

        Cost of revenue increased 24% to $16.5 million, or 55% of revenue for the year ended December 31, 2002 from $13.3 million, or 56% of revenue for the year ended December 31, 2001. Cost of revenue increased due to (i) the expansion of our data center primarily related to the acquisition of AdRelevance; (ii) expenses related to the third party generated surveys related to the @Plan product; and (iii) the international panel expenses related to the acquisitions of eRatings and NetValue. These increases were partially offset by a reduction in strategic partner royalty expenses related to the discontinuation of AdSpectrum and eCommercepulse and a reduction in panel fees associated with both the U.S. home and at-work panels as recruiting efforts decreased.

        In February 2003, we announced our intention to launch a MegaPanel service in the United States and to expand the service internationally, which will require significant investment in recruitment and panel related costs.

        Research and Development.    Research and development expenses consist primarily of compensation and related costs for personnel associated with our research and product development activities. These costs are expensed as incurred. Research and development expenses increased 19% to $8.8 million for the year ended December 31, 2002 from $7.4 million for the comparable period in 2001. Research and development expenses represented 30% and 31% of revenue for the years ended December 31, 2002 and 2001, respectively. The increase was primarily due to increased research and development personnel and associated payroll expenses resulting from the acquisitions during the year, partially offset by our reduction in workforce in the first quarter of 2002.

        Sales and Marketing.    Sales and marketing expenses consist primarily of salaries, benefits, and commissions to our salespeople and analysts, as well as costs related to seminars, promotional materials, public relations, advertising, and other sales and marketing programs. Sales and marketing expenses decreased 7% to $13.8 million for the year ended December 31, 2002 from $14.8 million for the comparable period in 2001. Sales and marketing expenses represented 46% and 63% of revenue for the years ended December 31, 2002 and 2001, respectively. The decrease was primarily related to a reduction in advertising, public relations, travel, and entertainment expenses resulting from our efforts to reduce discretionary spending. The decrease was partially offset by an increase in payroll and related expenses resulting from an increased headcount in 2002.

        General and Administrative.    General and administrative expenses consist primarily of salaries and related costs for executive management, finance, accounting, human resources, legal, information technology, and other administrative personnel, in addition to professional fees and other general corporate expenses. General and administrative expenses increased 12% to $6.4 million for the year ended December 31, 2002 from $5.7 million for the comparable period in 2001. General and administrative expenses represented 22% and 24% of revenue for the years ended December 31, 2002 and 2001, respectively. The increase in absolute dollars was primarily related to higher payroll and related expenses due to a higher average headcount in 2002. In addition, higher travel and related expenses during 2002 further contributed to the overall increase in general and administrative expenses.

        Restructuring and Other Expenses.    During the first quarter of 2002, we initiated a restructuring plan to streamline our business to focus on core products, refine our product line, and consolidate

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space at our Milpitas, California facility. This plan also included a 15% reduction in workforce. The restructuring expense of $7.0 million recorded in the first quarter reflected the severance expenses related to the termination of 24 employees, all of whom have been terminated; accruals related to costs to terminate or transition contracts due to the elimination of products; impairment charges related to fixtures and equipment; and an accrual for the lease payments related to office space in excess of our current and projected future needs. During the fourth quarter of 2002, we decreased by $426,000 our accruals related to the elimination of products due to the successful resolution of customer contract issues related to the eliminated products, and recorded additional charges related to legal matters, intangible assets, and severance benefits based on the identification of 16 additional employees who were terminated prior to December 31, 2002. We expect these restructuring activities will result in annual operating expense savings of approximately $2,500,000. There were no corresponding expenses recorded during 2001.

        Acquisition-related Expenses.    During the first quarter of 2002, we recognized acquisition-related expenses of $3.0 million related to the terminated merger between NetRatings and Jupiter Media Metrix. There were no corresponding charges in 2001.

        Amortization of Intangibles.    During the year ended December 31, 2002, we recognized amortization of intangible assets of $2.4 million resulting from the amortization of the specifically identified intangibles associated with the acquisitions of AdRelevance, @Plan, eRatings, and NetValue and other intangible assets, including patents. There was no corresponding amortization in 2001.

        Stock-based Compensation.    Stock-based compensation primarily represents amortization of deferred charges related to stock warrants which Nielsen Media Research exercised in December 1999. Stock-based compensation expenses decreased 5% to $9.4 million, or 32% of revenue for the year ended December 31, 2002 from $9.9 million, or 42% of revenue for the year ended December 31, 2001. The decrease primarily resulted from the scheduled amortization of our stock-based compensation costs, partially offset by the expenses associated with the accelerated vesting for the former chairman of the board.

        Loss from Joint Ventures.    Loss from joint ventures decreased 55% to $2.5 million, or 9% of revenue for the year ended December 31, 2002 from $5.6 million, or 24% of revenue for the year ended December 31, 2001. The decrease was primarily due to our acquisition of ACNielsen's interest in eRatings in May 2002, after which eRatings' losses have been reported in our consolidated results rather than in the loss from joint ventures. The decrease in losses is also due to a 50% reduction in the number of countries in which the Nielsen//NetRatings service is offered when compared to the corresponding period in 2001.

        Impairment of Investments.    Management performs regular reviews to determine if investments are impaired. During our 2002 fourth quarter review, we determined that two of our investments in equity securities were impaired due to changes in the companies' business models and their deteriorating financial position. Since we concluded that these impairments were other than temporary, we recognized one-time non-cash charges of $4.5 million. There was no corresponding impairment of investments in 2001 and at December 31, 2002 we have written down our long-term investments to zero.

        Interest Income, Net.    Interest income, net, decreased 49% to $8.0 million for the year ended December 31, 2002 from $15.6 million for the comparable period in 2001. The decrease reflects an overall reduction of interest rates in 2002 when compared with 2001. Decrease in interest income also resulted from an overall reduction in cash and cash equivalents during 2002 as a result of the repurchase of shares of common stock from two former executives, acquisitions completed during the year and the settlement of the patent infringement litigation with Jupiter Media Metrix.

        We anticipate interest income to continue to decline as the current market conditions prevail.

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        Minority Interest.    At December 31, 2002 we owned approximately 86% of the capital of NetValue. The minority interest in the loss of NetValue was recorded to reflect the interest of the minority shareholders in the operations of NetValue. There were no corresponding amounts in 2001.

        Operating Loss.    Operating loss increased 45% to $39.9 million, or 134% of revenue for the year ended December 31, 2002 from $27.6 million, or 117% of revenue for the year ended December 31, 2001. The increase is primarily due to the higher production costs for our online products and services as the result of acquisitions, restructuring and other expenses, acquisition-related expenses, and amortization of intangibles. The increase in operating loss was partially offset by an increase in revenue, a reduction in sales and marketing expenses, and a reduction in amortization of stock-based compensation during 2002.

        Net Loss.    For the year ended December 31, 2002, our net loss increased to $38.9 million, or $1.17 per share on approximately 33.2 million shares outstanding, as compared with a net loss of $17.6 million, or $0.54 per share on approximately 32.9 million shares outstanding for year ended December 31, 2001. The increase is primarily due to (i) a decrease in interest income resulting from acquisitions and the reduction in interest rates, (ii) impairment of investments, (iii) restructuring expenses, (iv) acquisition-related expenses, (v) amortization of intangible assets, and (vi) an increase in cost of revenue expenses. These increases were partially offset by (i) higher revenue in 2002, (ii) a reduction in sales and marketing expenses, (iii) a reduction in joint venture losses as the result of the acquisition of eRatings and (iv) the reduction in amortization of stock-based compensation.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

        Revenue.    Revenue increased 15% to $23.5 million for the year ended December 31, 2001 from $20.4 million for the year ended December 31, 2000. Sales of our information and analytical products and services accounted for substantially all of the revenue for each year. The increase in revenue was primarily due to the amortization of deferred revenue from the contract sales in 2000 and from increased revenue related to the introduction of international audience measurement services during 2000. For the year ended December 31, 2001:

•

our audience measurement service comprised 73% of our revenue as compared to 69% for the year ended December 31, 2000;


•

our suite of analytical services comprised 18% of the revenue as compared to 22% for the year ended December 31, 2000; and


•

our international royalties comprised 9% of the revenue as compared to 9% for the year ended December 31, 2000.

        During the year ended December 31, 2001, no customer accounted for more than 10% of our revenue.

        Cost of Revenue.    Cost of revenue increased 4% to $13.3 million, or 56% of revenue for the year ended December 31, 2001 from $12.7 million, or 62% of revenue for the year ended December 31, 2000. The increase reflects costs incurred in 2001 related to the production support of our Nielsen//NetRatings online services, a full year's amortization of the data acquisition costs due to our joint ventures which is recognized ratably over the terms of the subscription agreements, as the data is provided, and royalties to strategic partners. The increase was offset by a decrease in expenses related to the Canadian panel and U.S. home and at-work panels. The decrease in percentage was primarily due to our higher revenues.

        Research and Development.    Research and development expenses increased 12% to $7.4 million, or 31% of revenue for the year ended December 31, 2001 from $6.6 million, or 32% of revenue for the year ended December 31, 2000. The increase was primarily due to higher engineering staff payroll and related expenses resulting from higher average engineering headcount in 2001.

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        Sales and Marketing.    Sales and marketing expenses decreased 15% to $14.8 million, or 63% of revenue for the year ended December 31, 2001 from $17.5 million, or 86% of revenue for the year ended December 31, 2000. The decrease was primarily related to a reduction in advertising, public relations, travel and entertainment expenses resulting from our efforts to reduce discretionary spending. The decrease was furthered by a reduction in commission expenses.

        General and Administrative.    General and administrative expenses increased 18% to $5.7 million, or 24% of revenue for the year ended December 31, 2001 from $4.8 million, or 24% of revenue for the year ended December 31, 2000. This increase in absolute dollars was primarily related to higher payroll and related expenses due to a higher average headcount in 2001. In addition, higher legal expenses related to litigation further contributed to the overall increase in general and administrative expenses.

        Stock-based Compensation.    Stock-based compensation expenses decreased 7% to $9.9 million, or 42% of revenue for the year ended December 31, 2001 from $10.7 million, or 52% of revenue for the year ended December 31, 2000. The decrease primarily resulted from the scheduled amortization of our stock-based compensation costs.

        Loss from Joint Ventures.    Loss from joint ventures increased 64% to $5.6 million, or 24% of revenue for the year ended December 31, 2001 from $3.4 million, or 17% of revenue for the year ended December 31, 2000. The increase is primarily due to the offering of our Nielsen//NetRatings services by our joint venture partners in an additional 10 countries compared to 2000.

        Interest Income, Net.    Interest income, net, decreased to $15.6 million, or 66% of revenue for the year ended December 31, 2001 from $21.0 million, or 103% of revenue for the year ended December 31, 2000. The decrease reflects an overall reduction of interest rates in 2001 when compared to 2000 as well as an increase in interest expense recorded related to the accrued eRatings capital contribution.

        Operating Loss.    Operating loss decreased 14% to $27.6 million, or 117% of revenue for the year ended December 31, 2001 from $31.9 million, or 156% of revenue for the year ended December 31, 2000. The decrease is primarily due to higher revenue recorded in 2001, a reduction in overall operating expenses due to our efforts to reduce discretionary spending and the reduction in amortization of stock-based compensation offset by an increase in cost of revenue due primarily to an increase in production expenses and royalties paid to our third-party data providers.

        Net Loss.    For the year ended December 31, 2001, our net loss increased to $17.6 million, or a loss of $0.54 per share on approximately 33.0 million shares outstanding, as compared to a net loss of $14.3 million, or a loss of $0.45 per share on approximately 32.0 million shares outstanding for year ended December 31, 2000. The increase is primarily due to a decrease in interest income resulting from a reduction in interest rates, an increase in the accrued losses on our joint venture activity, and an increase in cost of revenue expenses, offset by the higher revenue recorded in 2001, a reduction in overall operating expenses due to our efforts to reduce discretionary spending and the reduction in amortization of stock-based compensation.

Inflation

        Our management currently believes that inflation has not had a material impact on continuing operations.

Liquidity and Capital Resources

        At December 31, 2002, the Company's cash and cash equivalents and short-term investments were $241.4 million compared with $322.6 million at December 31, 2001. The primary use of cash during 2002 was to repurchase shares of common stock from two former executives, fund acquisitions and operations, and settle the patent infringement litigation.

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        Cash used in operating activities was $18.9 million in 2002 due to our net loss of $38.9 million and cash used in working capital changes of $1.6 million offset by non-cash charges of $21.7 million. The non-cash expenses include $9.4 million for stock-based compensation, $2.6 million for depreciation, $2.5 million for loss on joint ventures, $2.4 million for amortization of intangible assets and $4.5 million for impairment of investments. Cash used in operating activities was $1.7 million in 2001 due to our net loss of $17.6 million offset by net working capital changes of $2.5 million, non-cash expenses of $9.9 million for stock-based compensation, $1.6 million for depreciation, $5.6 million for loss on joint ventures, and provision for doubtful accounts of $0.5 million. Cash provided by operating activities was $7.8 million in 2000. Our $14.3 million net loss in 2000 was offset by our net working capital changes of $6.2 million and non-cash expenses of $10.7 million for stock-based compensation, $1.2 million for depreciation, and $3.4 million for loss on joint ventures and provision for doubtful accounts of $0.6 million. We expect net cash used in operating activities to increase during 2003 due to the launch of our MegaPanel service announced in February 2003, and a continued decrease in interest income as a result of our lower cash and short-term investments balances and the low interest rate environment.

        Net cash provided by investing activities during 2002 was $34.7 million reflecting net sales of our short-term investments of $77.9 million. The increase was partially offset by cash paid for acquisitions, net of cash acquired, cash investments in joint ventures and patent settlement and acquisition costs totaling $40.4 million, and acquisition of property and equipment of $2.7 million. Net cash provided by investing activities during 2001 was $42.3 million due to net sales of our short-term investments of $51.4 million, partially offset by cash investments in joint ventures of $7.8 million, and acquisition of property and equipment of $1.3 million. Net cash used in investing activities totaled $280.4 million in 2000 primarily related to the net purchase of $276.2 million in short-term investments, investments in joint ventures of $1.3 million, and capital expenditures of $3.0 million. We had no material capital expenditure commitments at December 31, 2002 and anticipate that capital expenditure spending will approximate the 2002 level of spending. We expect net cash provided by investing activities to be further reduced by use of our short-term investments to support operations and investments in joint ventures and other potential strategic investments.

        Net cash used in financing activities totaled $18.8 million for the year ended December 31, 2002. This was primarily related to $20.6 million used to repurchase 1.5 million shares of common stock from two former executive officers, offset by the exercise of options and stock issued through our employee stock purchase plan, totaling $1.9 million. Net cash used in financing activities totaled $743,000 in 2001. This was primarily related to a $3.0 million payment to settle outstanding litigation against us, which was partially offset by the exercise of options and the purchase of stock through the employee stock purchase plan, amounting to $2.4 million. Net cash provided by financing activities totaled $903,000 in 2000, primarily related to the exercise of options and the purchase of stock through the employee stock purchase plan, offset by payments on our capital lease obligations.

        As of December 31, 2002, minimum payments under all non-cancelable lease agreements were as follows (in thousands):

        In connection with business acquisitions and restructuring activities in 2002, our restructuring liability account includes accruals for several facilities in which there is idle space or space in excess of

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projected needs. Rent payments related to these facilities are not included in the future minimum lease commitments.

        In the ordinary course of business we enter into various arrangements with vendors and other business partners principally for panel development, panel maintenance, and marketing. There are no material commitments for these arrangements extending beyond 2003. While we have historically made additional contributions to our joint ventures in order to maintain our ownership percentage, we are not contractually required to make such contributions. In the event of a request for capital infusion, we have the option as to whether or not we participate in the round of funding. Should we elect not to participate our equity position would be diluted in that joint venture.

        We believe that our existing balances of cash and cash equivalents and short-term investments will be sufficient to meet our cash needs for working capital and capital expenditures for at least the next 12 months, although we could elect to seek additional funding prior to that time. We could require additional capital prior to the end of this period if, for example, we were to experience greater than expected losses from operations, we were required to pay damages in connection with any litigation, or if we were to pursue one or more business acquisitions or investments. If we do require additional financing, however, we cannot be certain that it will be available when required, on favorable terms, or at all. If we are not successful in raising additional capital as required, our business could be harmed. If additional funds were raised through the issuance of equity securities, the percentage ownership of our then-current stockholders would be reduced.

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RISK FACTORS THAT MAY AFFECT OUR PERFORMANCE

        An investment in our company involves a high degree of risk. You should carefully consider the risks below, together with the other information contained in this report, before you make an investment decision with respect to our company. The risks described below are not the only ones facing our company. Additional risks not presently known to us or that we deem immaterial may also impair our business operations. Any of the following risks (i) could materially adversely affect our business, operating results, and financial condition, (ii) could cause the trading price of our common stock to decline, and (iii) could cause you to lose all or part of your investment.

WE HAVE INCURRED LOSSES SINCE INCEPTION AND WE MAY BE UNABLE TO ACHIEVE PROFITABILITY

        We have experienced operating losses in each quarter since our inception. We incurred net losses of $17.6 million for the year ended December 31, 2001, and $38.9 million for the year ended December 31, 2002, and as of December 31, 2002, our accumulated deficit was $94.3 million. We intend to continue to make significant expenditures as our company grows and as we expand our portfolio of products and services. As a result, we will need to generate significant revenue to achieve and maintain profitability. We may not be able to achieve significant revenue growth in the future. Our operating results for future periods are subject to numerous uncertainties and we may not achieve sufficient revenue to become profitable.

WE HAVE A LIMITED OPERATING HISTORY IN THE EVOLVING MARKET FOR INTERNET AUDIENCE MEASUREMENT

        We were incorporated in July 1997 and did not start generating revenue until the quarter ended June 30, 1998. We introduced our Nielsen//NetRatings Internet Audience Measurement Service in the quarter ended June 30, 1999. Many of our other products and services were first offered by us during 2002. Accordingly, we are still in the early stages of development and have only a limited operating history upon which to evaluate our business. One should evaluate our likelihood of financial and operational success in light of the risks, uncertainties, expenses, delays, and difficulties associated with an early-stage business in an evolving market, many of which may be beyond our control, including:

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the risk that a competing company's Internet audience measurement service will become the accepted standard for Internet audience measurement;

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the extent of growth, if any, in the Internet audience measurement market;

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our potential inability to successfully manage any significant growth we may achieve in the future;

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our potential inability to successfully integrate any acquired business, technology, or service; and

•

the risks associated with our international operations, including the necessary investments in our international joint ventures.

OUR QUARTERLY REVENUES MAY FLUCTUATE SIGNIFICANTLY AND BECAUSE OUR EXPENSE LEVELS ARE BASED IN LARGE PART ON OUR ESTIMATES OF FUTURE REVENUES, AN UNEXPECTED SHORTFALL IN REVENUE WOULD SIGNIFICANTLY HARM OUR OPERATING RESULTS AND COULD LEAD TO REDUCED PRICES FOR OUR STOCK

        Due to our limited operating history and the evolving nature of the market in which we compete, our future revenue is difficult to forecast. Further, our expense levels are based largely on our investment plans and estimates of future revenue. We may be unable to adjust our spending to compensate for an unexpected shortfall in revenue. Accordingly, any significant shortfall in revenue relative to our planned expenditures in a particular quarter would harm our results of operations and

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could lead our stock price to fall sharply, particularly following quarters in which our operating results fail to meet expectations.

        Factors that may cause fluctuations in our revenues or operating results on a quarterly basis include the following, some of which are beyond our control:

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the amount and timing of operating costs and capital expenditures related to the expansion of our business;

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the amount and timing of costs related to changes in the size or composition of our at-home and at-work panels, particularly as a result of turnover among panel members;

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the impact on our renewal rates caused by the failure of any of our current customers, our customers budgetary constraints, or a perceived lack of need for our services;

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changes in demand for our products and services due to the announcement or introduction of new products and services or the cancellation of existing products and services by us or our competitors or a continued slowdown in online advertising spending;

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changes in the pricing of our products and services in light of the services and pricing offered by our competitors;

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the impact of possible acquisitions or equity investments both on our operations and on our reported operating results due to associated accounting charges; and

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technical difficulties or service interruptions that significantly harm our ability to deliver our products and services on schedule.

THE CURRENT ECONOMIC DOWNTURN HAS ADVERSELY AFFECTED OUR BUSINESS

        General economic conditions, and conditions in the Internet sector in particular, have caused some of our customers to cease operations and others to cancel their contracts or reduce their spending on the products and services that we supply. In addition, our AdRelevance business derives, and expects to continue to derive for the foreseeable future, a large portion of its revenue from the automated retrieval and delivery of online advertising data. Expenditures by advertisers tend to be cyclical, reflecting overall economic conditions as well as budgeting and buying patterns. The overall market for advertising, including Internet advertising, has been characterized in recent quarters by increasing softness of demand, lower prices for advertisements, the reduction or cancellation of advertising contracts, an increased risk of uncollectible receivables from advertisers, and the reduction of marketing and advertising budgets, especially by Internet-related companies. As a result of these reductions, advertising spending across traditional media, as well as the Internet, has decreased.

WE HAVE LIMITED ABILITY TO FORECAST THE RATE AT WHICH SUBSCRIPTIONS FOR OUR SERVICES MAY BE RENEWED, AND WE MAY NOT ACHIEVE SUFFICIENTLY-HIGH RENEWAL RATES TO BECOME PROFITABLE

        We derive substantially all of our revenue from annual subscriptions for our services. As our business becomes more established, we expect subscription renewals and sales of additional products and services to existing customers to account for an increasing proportion of our revenue. Any unexpectedly low renewal rates or a reduction in the number of products and services that we are able to sell to existing customers would harm our operating results and could prevent us from becoming profitable. To date, renewals have been an essential element of our revenue growth. We cannot assure you that we will be able to achieve or sustain high renewal rates, particularly during an economic downturn. Additionally, because most Internet-related businesses are still in the early stages of development, consolidations in our customer base or the failure of a significant number of our customers' businesses could cause a decline in renewal rates for our products and services.

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WE MAY BE UNABLE TO OBTAIN COMPLETE OWNERSHIP OF NETVALUE, S.A., WHICH COULD RESULT IN INCREASED OPERATING EXPENSES RELATING TO THE OPERATION OF A PUBLIC COMPANY SUBSIDIARY IN FRANCE

        On August 9, 2002, we acquired a 52% controlling interest in NetValue, S.A., a publicly traded French company listed on the Nouveau Marché of Euronext Paris S.A. Following the purchase of the controlling interest in NetValue and the purchase of additional shares of NetValue on the open market, we completed a simplified all-cash take-over bid which resulted in the purchase of an additional 2,857,940 shares of NetValue. As a result, we currently own 8,011,463 shares of NetValue representing approximately 86% of the capital and 87.5% of the voting rights of NetValue.

        In France, a simple majority ownership position is not, however, sufficient to ensure the complete acquisition of a company, as may occur in the United States through the use of a merger structure. French law provides a mechanism for obtaining complete control of a company but only if we acquire 95% or greater of NetValue's outstanding stock. Should we not be able to reach the 95% ownership threshold in NetValue, or if the complete acquisition of NetValue were delayed, NetValue would continue to operate as a separate entity in France. Continued operation of a public company subsidiary in France would result in increased operating expenses, including legal, accounting, and other administrative expenses.

THE ACCEPTANCE AND EFFECTIVENESS OF INTERNET ADVERTISING AND ELECTRONIC COMMERCE IS UNCERTAIN, AND IF THESE MARKETS FAIL TO DEVELOP OR DEVELOP MORE SLOWLY THAN WE EXPECT, OUR BUSINESS WILL SUFFER

        Our future success will depend in part on an increase in the use of the Internet as an advertising medium, the proliferation of e-commerce, and the use of the Internet as part of multi-channel marketing strategies. These markets and marketing techniques are new and rapidly evolving, and the long term effectiveness of Internet advertising is uncertain. More recently, in the face of a slowing economy overall, there has been increased uncertainty about the demand and market acceptance for Internet advertising and e-commerce.

        The adoption of Internet advertising, particularly by entities that have historically relied on traditional media for advertising, requires the acceptance of a new way of conducting business. These companies may find Internet advertising to be less effective than traditional advertising for promoting their products and services. They may also be unwilling to pay premium rates for advertising that is targeted at specific types of users based on demographic profiles or recent Internet behavior. The Internet advertising and e-commerce markets may also be adversely affected by privacy issues surrounding the targeting of this type of advertising or the use of personal information. Providers of goods and services online continue to work toward the establishment of commerce models that are cost effective and unique, and effectively deal with issues such as channel conflict and infrastructure costs. Growth in the use of the Internet for e-commerce may not continue, or the Internet may not be adopted as a medium of commerce by a broad base of customers. In addition, many current and potential publishers of content and commerce merchants on the Internet have little or no experience in generating revenue from the sale of advertising space on their Internet sites or from conducting online commerce transactions. Because of the foregoing factors, among others, the market for Internet advertising and e-commerce may not continue to emerge or become sustainable. If these markets fail to develop or develop more slowly than we expect, our business will suffer.

THE MARKET FOR INTERNET AUDIENCE MEASUREMENT AND ANALYSIS IS HIGHLY COMPETITIVE, AND IF WE CANNOT COMPETE EFFECTIVELY, OUR REVENUES WILL DECLINE

        The market for Internet audience measurement and analysis is new, rapidly evolving and highly competitive. We compete with a number of companies in the market for Internet audience

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measurement services and analytical services, and we expect competition in this market to intensify in the future.

        We believe that the principal competitive factors in our market are:

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the ability to provide high-quality, accurate and reliable data regarding Internet audience behavior and activity in a timely manner;

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the breadth and depth of the product and services offered and their flexibility and ease of use;

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the availability of data across various geographic areas;

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the ability to offer high-quality analytical services based on the Internet audience measurement information;

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the ability to offer products and services that meet the changing needs of our customers; and

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the prices that are charged for the products and services, as well as the general economic conditions.

        Some of our competitors may be able to:

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devote greater resources to marketing and promotional campaigns;

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adopt more aggressive pricing policies; or

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devote more resources to technology and systems development.

        In light of these factors, we may be unable to compete successfully in our market.

ANY ACQUISITIONS OR EQUITY INVESTMENTS THAT WE UNDERTAKE COULD BE DIFFICULT TO CLOSE AND INTEGRATE, MAY DISRUPT OUR BUSINESS, DILUTE STOCKHOLDER VALUE, OR HARM OUR OPERATING RESULTS

        We may continue to acquire or make investments in complementary businesses, technologies, services, or products if appropriate opportunities arise. Negotiating such acquisitions can be difficult, time consuming, and expensive and our ability to close such transactions may often be subject to approvals, such as governmental regulation, which are beyond our control. Consequently, we can make no assurances that such acquisitions, once undertaken and announced, will close. Further, the process of integrating any acquired business, technology, service or product into our business and operations may result in unforeseen operating difficulties and expenditures. Integration of an acquired company also may consume much of our management's time and attention that would otherwise be available for ongoing development of our business. Moreover, the anticipated benefits of any acquisition may not be realized. Companies in which we invest may not be successful in executing their business strategies and we may be required to write-off all or part of our investment. We may be unable to identify, negotiate or finance future acquisitions or investments successfully, or to integrate successfully any acquisitions with our current business. Future acquisitions could result in potentially dilutive issuances of equity securities or the incurrence of debt, contingent liabilities, or amortization expenses related to intangible assets, any of which could harm our business.

WE ARE DEPENDENT ON NIELSEN MEDIA RESEARCH FOR THE DEVELOPMENT AND MAINTENANCE OF PANELS OF INTERNET USERS IN THE UNITED STATES AND ON ACNIELSEN AND OUR OTHER JOINT VENTURE PARTNERS FOR THE DEVELOPMENT AND MAINTENANCE OF SUCH PANELS IN INTERNATIONAL MARKETS

        The data for our audience measurement service is collected from randomly-selected groups of Internet users that are generally referred to as audience measurement panels. Our at-home Internet audience measurement panel in the United States has been developed and is maintained by Nielsen Media Research as part of our strategic relationship with that company. Similarly, our Internet audience measurement panels and other sampling methodologies that we employ in geographic locations outside of the United States, Canada, France, and Japan have been developed and maintained

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by eRatings using ACNielsen's proprietary sampling methodology and employees made available to eRatings by ACNielsen. As part of the acquisition of eRatings by NetRatings in May 2002, ACNielsen granted NetRatings a license to use ACNielsen's sampling methodology and the "Nielsen" name outside North America in the Internet audience measurement business, and has entered into a service agreement to provide eRatings, for a period of five years following the acquisition with the services of certain dedicated marketing and panel management personnel who are employed by ACNielsen, as well as certain back office services which were provided to eRatings by ACNielsen prior to the acquisition. Accordingly, for a significant period of time, we expect that our business will be substantially dependent upon these arrangements for the continued maintenance of our international Internet audience measurement panels and for other international business operations. Any failure on the part of Nielsen Media Research, ACNielsen, or our other joint venture partners to devote adequate resources to the development or maintenance of such panels or other sampling methodologies, or to maintain the overall quality of these methodologies, will harm our business. In addition, Nielsen Media Research may terminate its obligations with respect to Internet audience measurement panels in the event it no longer holds at least 5% of our outstanding stock on a fully-diluted basis.

VNU N.V., THROUGH ITS WHOLLY-OWNED SUBSIDIARIES NIELSEN MEDIA RESEARCH AND ACNIELSEN, CONTROLS A MAJORITY OF OUR OUTSTANDING STOCK AND ITS REPRESENTATIVES CONSTITUTE A MAJORITY OF OUR BOARD OF DIRECTORS

        VNU, N.V., through its wholly-owned subsidiaries Nielsen Media Research and ACNielsen, has a majority stock ownership position in NetRatings, which enables it to control the direction and policies of NetRatings, including the election of our board of directors, amendment of our certificate of incorporation, and decisions regarding mergers, acquisitions, consolidations, and the sale of all or substantially all of our assets. This control may have the effect of discouraging certain types of transactions involving a change of control.

        In addition, VNU can control or influence the terms of our important commercial transactions, including our strategic relationships with Nielsen Media Research and ACNielsen. VNU's representatives on our board are expected to recuse themselves from deliberations in which they have a conflict of interest. However, these directors may take actions that favor VNU's interests over the interests of other stockholders, as a result, for instance, of conflicts of interest that are not apparent at the time of such actions.

OUR BRAND IS DEPENDENT ON THE REPUTATIONS OF THIRD PARTIES OVER WHICH WE HAVE NO CONTROL

        The strength of the Nielsen//NetRatings brand is also closely dependent on the reputations of Nielsen Media Research, ACNielsen, and our other joint venture partners and the strength of their brands. Therefore, any negative publicity generated by Nielsen Media Research, ACNielsen, or our other joint venture partners, whether or not directly related to any Nielsen//NetRatings branded products or services, as well as any erosion of the strength of any of their brands, will adversely affect our own brand identity.

OUR COSTS TO DEVELOP AND MAINTAIN ACCURATE INTERNET AUDIENCE MEASUREMENT PANELS ARE SIGNIFICANT AND MAY INCREASE

        We believe that the quality, size, and scope of our panels is critical to the success of our business. To date, the expense of recruiting and operating our audience measurement panels has made up a very significant portion of the cost of revenue reported on our financial statements and, therefore, any increase in this expense will likely result in a decrease in our gross margin. The costs associated with maintaining the quality, size, and scope are dependent on many factors some of which are beyond our control, including the cooperation rate of potential panel members and turnover among existing panel members, and accordingly we cannot necessarily control these costs to match increases or decreases in

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revenue. To the extent that such additional expenses are not accompanied by increased revenue, our results of operations will be harmed. We have limited experience in developing Internet audience measurement panels, and we could experience lower cooperation rates or higher turnover rates in the future.

        In February 2003, we announced our intention to launch a MegaPanel service in the United States and to expand the service internationally, which will require significant investment. There can be no assurance that we will be successful in selling our MegaPanel service in the United States or internationally.

OUR INTERNATIONAL OPERATIONS POSE UNIQUE RISKS THAT MAY DIVERT OUR MANAGEMENT'S ATTENTION AND RESOURCES

        Through our acquisition of (i) eRatings, (ii) selected international assets of Jupiter Media Metrix, and (iii) majority control of NetValue, we have acquired control of audience measurement data operations in countries that we have previously served only through our minority interest in eRatings. Our international markets will require significant management attention and resources. In addition, there can be no assurance of the continued growth of Internet usage in international markets. The international markets for audience measurement services have historically been localized and difficult to penetrate.

        The success of the our international operations will depend on our ability to:

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effectively select the appropriate countries to serve;

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recruit and maintain at-home and at-work panels that are representative of a geographic area;

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control costs and effectively manage foreign operations;

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manage third-party vendors who will likely perform panel operations; and

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effectively develop, market, and sell new products and services in new, unfamiliar markets.

        Meeting these challenges may be difficult given the circumstances we face at the present time. The operations of eRatings that we have acquired are not supported by an existing independent eRatings infrastructure. Historically, most of the back office services and employees and facilities required by eRatings have been made available to it by ACNielsen under various intercompany service agreements and arrangements. Although ACNielsen no longer owns a direct equity interest in eRatings, ACNielsen has agreed to grant NetRatings a license to use ACNielsen's proprietary audience sampling methodology and the "Nielsen" trademark outside of North America in the Internet audience measurement business, and has entered into a services agreement to provide eRatings, for a period of five years beginning in May 2002, with the services of certain dedicated marketing and panel management personnel who are employed by ACNielsen, as well as certain back office services currently provided to eRatings by ACNielsen. Accordingly, for a significant period of time we expect that the eRatings business will be substantially dependent upon these arrangements with ACNielsen for its infrastructure, for the continued maintenance of its Internet audience measurement panels and otherwise for the operation of its business. Although ACNielsen may agree to extend the five-year term of the arrangements, there can be no assurance that it would choose to do so.

        Even if we are successful in managing our international operations, we will be subject to a number of risks inherent in engaging in international operations, including:

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changes in regulatory requirements;

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deficiencies in the telecommunications infrastructure in some countries;

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reduced protection for intellectual property rights in some countries;

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more rigorous levels of privacy protection in some countries;

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potentially adverse tax consequences;

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•

economic and political instability; and

•

fluctuations in currency exchange rates.

WE MAY NOT BE SUCCESSFUL IN THE DEVELOPMENT OR INTRODUCTION OF NEW PRODUCTS AND SERVICES TO KEEP UP WITH THE PROLIFERATION OF ALTERNATIVE INTERNET ACCESS DEVICES AND TECHNOLOGIES RELATED TO THE EXPECTED CONVERGENCE OF THE INTERNET AND TELEVISION

        We believe that an increasing proportion of Internet use will involve alternative Internet access devices such as Web-enabled phones, television set-top boxes and internet enabled gaming consoles and that there will eventually be a convergence of Internet content and television programming. Accordingly, in order to continue to provide information about audience behavior throughout all major segments of the Internet, we will be required to develop new products and services that address these evolving technologies. We may be unsuccessful in identifying new product and service opportunities or in developing or marketing new products and services in a timely or cost-effective manner. In addition, product innovations may not achieve the market penetration or price stability necessary for profitability. Finally, we may not be successful in adapting our data collection software to evolving types of Internet access devices or content. If we are unable to provide audience measurement information regarding any significant segments of Internet use, demand for our products and services may suffer.

WE MAY NOT BE ABLE TO RECRUIT OR RETAIN QUALIFIED PERSONNEL

        Our future success depends in large part on our ability to attract, retain, and motivate highly skilled employees. We may have difficulties in retaining employees because many of our employees hold options to purchase our stock at prices significantly above the current market price for our stock. Although we provide compensation packages that include competitive salaries, stock options, bonus incentives, and other employee benefits, we may be unable to retain our key employees or to attract, assimilate and retain other highly qualified employees in the future, which would harm our business.

BECAUSE THE INTERNET AUDIENCE MEASUREMENT INDUSTRY IS IN ITS INFANCY, THE PRICING AND ACCEPTANCE OF OUR PRODUCTS AND SERVICES IS UNCERTAIN

        We may be forced for competitive or technical reasons to reduce prices for some of our products or services or to offer them free of charge. Such circumstances would reduce our revenue and could harm our business. Additionally, our market is still evolving, and we have little basis to assess demand for different types of products or services or to evaluate whether our products and services will be accepted by the market. If our products and services do not gain broad market acceptance, our business may fail.

THE AUDIENCE MEASUREMENT SERVICES OFFERED BY NIELSEN MEDIA RESEARCH OR ACNIELSEN MAY EVENTUALLY HAVE FEATURES THAT OVERLAP WITH FEATURES OF OUR INTERNET AUDIENCE MEASUREMENT SERVICES AS A RESULT OF CONVERGENCE OF TELEVISION AND THE INTERNET

        Nielsen Media Research's principal business consists of providing television audience measurement services based on audience panels that it develops independent of its strategic relationship with us. ACNielsen also derives a substantial portion of its revenue from television audience measurement services outside of the United States. If television and the Internet converge in the future as expected, any Internet audience information that is reported by television audience measurement services through these VNU subsidiaries may overlap with the audience information that is reported by the Nielsen//NetRatings Internet audience measurement services. In the event of such overlap, VNU's services could begin competing with our services for the same research budgets among customers in the marketplace, and its offering of such services could conflict with its obligation to develop and maintain our Internet audience panels.

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OUR BUSINESS MAY BE HARMED IF WE SUPPLY INACCURATE INFORMATION TO OUR CUSTOMERS

        If we furnish inaccurate information to our customers, our brand may be harmed. The information in our databases, like that in any database, may contain inaccuracies that our customers may not accept. Any dissatisfaction by our customers with our measurement methodologies or databases could have an adverse effect on our ability to attract new customers and retain existing customers and could ultimately harm our brand. Our customer contracts generally provide that each customer must indemnify us for any damages arising from the use of data, reports or analyses by the customer or the performance of any consulting, analytic, or other services by us. However, we cannot be certain that our contract provisions provide sufficient protection and, in any event, enforcing these protections could be very costly. Any liability that we incur or any harm to our brand that we suffer because of irregularities or inaccuracies in the data we supply to our customers could harm our business.

SYSTEM FAILURES OR DELAYS MAY HARM OUR BUSINESS, AND OUR FACILITIES AND INTERNAL COMPUTER OPERATIONS ARE VULNERABLE TO NATURAL DISASTERS AND OTHER UNEXPECTED LOSSES

        Our success depends on the efficient and uninterrupted operation of our computer and communications systems. A failure of our network or our data gathering procedures could impede the processing of data, customer orders, and day-to-day management of our business and could result in the corruption or loss of data.

        Our internal computer operations are located in leased facilities in San Jose, California, in an area that is susceptible to earthquakes. We do not have a backup facility to provide redundant network capacity in the event of a system failure. Accordingly, if this location experienced a system failure, our online services would become unavailable to our customers until we were able to bring an alternative facility online, a process which could take several weeks. These systems are also vulnerable to damage from fire, floods, power loss, telecommunications failures, break-ins, and similar events.

        We intend to develop back-up systems outside of San Jose. However, as we replicate our systems at other locations, we will face a number of technical challenges, particularly with respect to database replications, which we may not be able to address successfully. Although we carry property and business interruption insurance, our coverage may not be adequate to compensate us for all losses that may occur. Our servers may also be vulnerable to computer viruses, physical or electronic break-ins and similar disruptions.

        During 2001, the western United States (and California in particular) experienced repeated episodes of diminished electrical power supply. As a result of these episodes, certain of our operations or facilities were subject to "rolling blackouts" or other unscheduled interruptions of electrical power. The prospect of such unscheduled interruptions may continue for the foreseeable future and we are unable to predict either their occurrence, duration or cessation. In addition, due to these power supply shortages, we may be subject to significantly greater power costs which may adversely affect our financial results.

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A DELAY OR DISCONTINUATION OF OUR SERVER HOSTING SERVICE COULD HARM OUR BUSINESS

        The servers on which we collect panel members' data are maintained by AboveNet at its facilities located in San Jose, California. We continually monitor our current utilization rate and the extent of our system capacity needs. We believe we are currently operating at utilization levels that do not require additional capacity. Accordingly, our ability to collect Internet audience data in real time is dependent upon the efficient and uninterrupted operation of AboveNet's computer and communications hardware and software systems. Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems at AboveNet's facility could result in interruptions in the flow of data to our servers. In addition, any failure by AboveNet to provide our required data communications capacity could result in interruptions in our service. In the past, we have experienced occasional minor interruptions in service from AboveNet, although we have never experienced a significant interruption in service due to failures at AboveNet. In the event of a delay in the delivery of data from AboveNet, or if AboveNet should discontinue its services to us, we would be required to transfer our data collection operations to an alternative provider of server hosting services. Such a transfer could result in significant delays in our ability to deliver our products and services to our customers, which could damage our reputation and harm our business. In recent quarters we have noticed a softening in the marketplace for "co-location" services such as those offered by AboveNet and its competitors and a corresponding decrease in the financial stability of many companies offering such services. If this trend continues, we could face potential interruptions or cancellation of our services and could have difficulties in establishing similar services with alternative providers.

WE ARE SUBJECT TO PENDING LEGAL PROCEEDINGS

        We are currently subject to a securities class action complaint relating to our initial public offering. The plaintiffs allege that our prospectus was materially false and misleading because it failed to disclose that the underwriters required several investors who sought large allocations of stock in the offering to pay excessive underwriters' compensation in the form of increased brokerage commissions on other trades and required investors to agree to buy shares of our stock after the offering was completed at predetermined prices as a precondition to obtaining allocations in the offering. The plaintiffs further allege that because of these purchases, our stock price after its initial public offering was artificially inflated. Similar complaints have been filed against a number of other issuers that had initial public offerings in 1999 and 2000. An adverse outcome could materially affect our results of operations and financial position.

WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS

        We regard our intellectual property as critical to our success. We rely on patent, trademark, copyright, and trade secret laws to protect our proprietary rights, and we seek to obtain the issuances of patents for our core technology and the registration of our material trademarks and service marks in the United States and in selected other countries. We cannot assure you, however, that the steps we have taken will be sufficient to protect our intellectual property from infringement or misappropriation. Moreover, effective intellectual property protections may not be available in every country in which we offer our products and services to the extent these protections are available in the United States. Our patent applications or trademark registrations may not be approved or, even if approved, could be challenged by others or invalidated through administrative process or litigation. If our patent applications or trademark registrations are not approved because third parties own rights to the technology we are trying to patent or the trademarks we are trying to register, our use of such technology or trademark would be restricted unless we enter into arrangements with the third-party owners, which might not be possible on commercially reasonable terms or at all. On March 17, 2003, we filed a patent infringement lawsuit against The NPD Group alleging that NPD is using methods for

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computer use tracking that infringes one of our patents for computer use tracking (United States Patent No. 6,115,680).

WE MAY FACE INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS THAT WOULD BE COSTLY TO RESOLVE OR MAY REQUIRE US TO MAKE CHANGES TO OUR TECHNOLOGY OR BUSINESS

        Third parties may, from time to time, assert claims that we have infringed upon their proprietary rights or claims that our own trademarks, patents, or other intellectual property rights are invalid. Such claims could adversely affect our reputation and the value of our own proprietary rights. From time to time we have been, and we may in the future be, subject to such claims in the ordinary course of our business, including claims of alleged infringement of patents, trademarks and other intellectual property rights of third parties. Protection of proprietary rights in Internet-related industries is inherently uncertain due to the rapidly evolving technological environment. As such, there may be numerous patent applications pending, many of which are confidential when filed, that provide for technologies similar to ours.

        Any claims of infringement and any resulting litigation, should they occur, could subject us to significant liability for damages, restrict us from using our technology or from operating our business generally, or require us to make changes to our technology. Any claims of this type, with or without merit, could be time-consuming to defend, result in costly litigation, and divert management attention and resources. In addition, such claims could result in limitations on our ability to use the intellectual property subject to these claims unless we are able to enter into royalty, licensing or other similar arrangements with the third parties asserting these claims. Such agreements, if required, may be unavailable on terms acceptable to us, or at all. If we are unable to enter into these types of agreements, we may be required to either cease offering the subject product or change our technology underlying the applicable product. If a successful claim of infringement is brought against us and we fail to develop non-infringing technology or to license the infringed or similar technology on a timely basis, it could materially adversely affect our business, financial condition, and results of operations.

ANY MISAPPROPRIATION OF PERSONAL INFORMATION ABOUT OUR PANELISTS THAT IS STORED ON OUR COMPUTERS COULD HARM OUR REPUTATION OR EXPOSE US TO CLAIMS ARISING FROM DAMAGES SUFFERED BY THOSE PANELISTS

        Personal information regarding our panelists is included in the data that our software captures from a panelist's Internet use. Our panel data are released only in an aggregated format or in a form that is not identifiable on an individual basis. However, if a person were to penetrate our network security or otherwise misappropriate sensitive data about our panel members, our reputation could be harmed or we could be subject to claims or litigation arising from damages suffered by panel members as a result of such misappropriation.

PRIVACY CONCERNS COULD LEAD TO LEGISLATIVE, REGULATORY, AND OTHER LIMITATIONS THAT COULD AFFECT OUR ABILITY TO COLLECT AND USE INFORMATION ABOUT INTERNET USERS, IMPAIR OUR ABILITY TO PROVIDE OUR PRODUCTS AND SERVICES TO CLIENTS AND EXPOSE US TO LIABILITY

        Privacy concerns could lead to legislative, judicial, and regulatory limitations on our ability to collect, maintain and use information about Internet users. Restrictions could be placed upon the collection, management, aggregation, and use of information, which could require significant reengineering time and resources. We could be prohibited from collecting or disseminating certain types of information, which could in turn materially adversely affect our ability to provide our products and services to our clients. Failure to comply with the law and regulatory requirements may result in,

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among other things, administrative enforcement actions and fines, class action lawsuits, and civil and criminal liability. The occurrence of one or more of these events could materially harm our business, results of operation, and financial condition.

GOVERNMENTAL REGULATION OF THE INTERNET MIGHT HARM OUR BUSINESS

        The applicability to the Internet of existing laws governing issues such as property ownership, libel, and personal privacy is uncertain. In addition, governmental authorities in various countries may seek to further regulate the Internet with respect to issues such as user privacy, pornography, acceptable content, advertising, e-commerce, taxation, and the pricing, characteristics and quality of products and services. Therefore, any new legislation regulating the Internet could inhibit the growth of the Internet and decrease the acceptance of the Internet as a communications and commercial medium, which might harm our business. Finally, the global nature of the Internet could subject us to the laws of a foreign jurisdiction in an unpredictable manner.

LEGISLATIVE ACTIONS, HIGHER INSURANCE COSTS, AND POTENTIAL NEW ACCOUNTING PRONOUNCEMENTS ARE LIKELY TO CAUSE OUR GENERAL AND ADMINISTRATIVE EXPENSES TO INCREASE AND IMPACT OUR FUTURE FINANCIAL POSITION AND RESULTS OF OPERATIONS

        In order to comply with the newly adopted Sarbanes-Oxley Act of 2002, as well as changes to Nasdaq listing standards and rules adopted by the Securities and Exchange Commission, we may be required to increase our internal controls, hire additional personnel and additional outside legal, accounting and advisory services, all of which will cause our general and administrative costs to increase. Insurers are also likely to increase premiums as a result of the high claims rates incurred over the past year, and so our premiums for our various insurance policies, including our directors' and officers' insurance policies, are likely to increase. Changes in the accounting rules, including legislative and other proposals to account for employee stock options as a compensation expense among others, could materially increase the expenses that we report under generally accepted accounting principles and adversely affect our operating results. In addition, any such changes may impact the amount of stock options we grant to our employees, which may affect our ability to recruit or retain key employees.

A SALE BY VNU OF ITS STAKE IN NETRATINGS COULD ADVERSELY AFFECT OUR STOCK PRICE

        There are no contractual restrictions on the ability of VNU, through its Nielsen Media Research or ACNielsen subsidiaries, to sell shares of our common stock, although sales in the public market will be subject to the volume limitations of SEC Rule 144. Pursuant to these volume limitations, a controlling stockholder may sell shares under Rule 144 only if the shares to be sold, together with the shares sold during the past three months, do not exceed the greater of 1% of the issuer's outstanding shares or the average weekly trading volume of the issuer's shares during the preceding four calendar weeks. Nielsen Media Research, ACNielsen, and several of our other stockholders have the right, under certain circumstances, to require us to register their stock for sale to the public, with the exception of the shares issued to ACNielsen in the acquisition of eRatings. Should VNU decide to sell its stake in NetRatings, it could adversely affect our stock price. Additionally, VNU will have the ability to transfer control of NetRatings, possibly at a premium over the then- current market price. Because VNU will have the ability to effect such a transfer of control unilaterally, other stockholders could be denied an opportunity to participate in the transaction and receive a premium for their shares.

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DELAWARE LAW AND OUR CHARTER DOCUMENTS CONTAIN PROVISIONS THAT COULD DISCOURAGE OR PREVENT A POTENTIAL TAKEOVER OF OUR COMPANY THAT MIGHT OTHERWISE RESULT IN OUR STOCKHOLDERS RECEIVING A PREMIUM OVER THE MARKET PRICE OF THEIR SHARES

        Provisions of Delaware law and our certificate of incorporation and bylaws could make more difficult the acquisition of us by means of a tender offer, a proxy contest, or otherwise, and the removal of incumbent officers and directors. These provisions include:

•

Section 203 of the Delaware General Corporation Law, which prohibits a merger with a 15%-or-greater stockholder, such as a party that has completed a successful tender offer, until three years after that party became a 15%-or-greater stockholder;



•

the authorization in the certificate of incorporation of undesignated preferred stock, which could be issued without stockholder approval in a manner designed to prevent or discourage a takeover; and



•

provisions in our bylaws eliminating stockholders' rights to call a special meeting of stockholders and requiring advance notice of any stockholder nominations of director candidates or any stockholder proposal to be presented at an annual meeting, which could make it more difficult for stockholders to wage a proxy contest for control of our board or to vote to repeal any of the anti-takeover provisions contained in our certificate of incorporation and bylaws.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        As of December 31, 2002, we had cash and cash equivalents and short-term investments of $241.4 million consisting of cash and highly liquid, short-term investments. Declines of interest rates over time will reduce our interest income from our cash and cash equivalents and short-term investments and, accordingly, could adversely affect our net income and earnings per share. The primary objective of our investment activities is to preserve capital while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we maintain our portfolio of cash equivalents and short-term investments in a variety of government and corporate obligations and money market funds. As of December 31, 2002, our investments had a weighted-average time to maturity of approximately 240 days.

        The following table presents the amounts of our financial instruments that are subject to interest rate risk by expected maturity and average interest rates as of December 31, 2002.

        NetRatings writes down its equity investments based on its share of the net losses recorded by its joint ventures. The net losses of those entities are impacted by foreign exchange rate fluctuations. A significant fluctuation in foreign exchange rates could materially impact the losses recorded for the international operations and joint ventures.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NETRATINGS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders,
NetRatings, Inc.:

        We have audited the accompanying consolidated balance sheets of NetRatings, Inc. as of December 31, 2002 and 2001, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of NetRatings, Inc.'s management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of NetRatings, Inc. at December 31, 2002 and 2001, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.

February 14, 2003
San Jose, California

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NETRATINGS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

See accompanying notes to the financial statements.

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NETRATINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

See accompanying notes to the financial statements.

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NETRATINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)

See accompanying notes to the financial statements.

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NETRATINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)