UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2003

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-27907

NETRATINGS, INC.

(Exact name of Registrant as specified in its charter)

Delaware		77-0461990
(State or other jurisdiction of incorporation of organization)		(I.R.S. Employer Identification No.)

890 Hillview Court Milpitas, California		95035
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (408) 957-0699

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

The number of shares of the Registrant’s Common Stock outstanding as of October 31, 2003, was 33,929,763.

NETRATINGS, INC. FORM 10-Q INDEX

Part I.		FINANCIAL INFORMATION
Item 1.		Condensed Consolidated Financial Statements
		Condensed Consolidated Balance Sheets - September 30, 2003 (Unaudited) and December 31, 2002
		Condensed Consolidated Statements of Operations - Three and Nine Months ended September 30, 2003 and 2002 (Unaudited)
		Condensed Consolidated Statements of Cash Flows - Nine Months ended September 30, 2003 and 2002 (Unaudited)
		Notes to Condensed Consolidated Financial Statements
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.		Quantitative and Qualitative Disclosures About Market Risk
Item 4.		Controls and Procedures
Part II.		OTHER INFORMATION
Item 1.		Legal Proceedings
Item 6.		Exhibits and Reports on Form 8-K
		Signatures

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NETRATINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

	September 30, 2003			December 31, 2002
	(Unaudited)

ASSETS
Current assets:
Cash and cash equivalents	$	97,454		$	84,569
Short-term investments	129,973			156,842
Accounts receivable, net	7,693			7,721
Due from joint ventures	1,219			1,268
Due from related parties	588			—
Prepaid expenses and other current assets	2,500			2,610

Total current assets	239,427			253,010

Property and equipment, net	3,209			2,994
Intangibles, net	17,759			21,684
Goodwill	54,538			51,298
Other assets	664			2,659

Total assets	$	315,597		$	331,645

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,253		$	3,962
Accrued liabilities	8,657			11,891
Deferred revenue	11,167			11,202
Due to related parties	9,738			7,304
Restructuring liabilities	1,483			6,604

Total current liabilities	33,298			40,963

Restructuring liabilities, less current portion	1,662			—

Total liabilities	34,960			40,963

Minority interest	2,009			2,016
Commitments and contingencies	—			—

Stockholders’ equity:
Common stock, par value $0.001:
Authorized shares: 200,000
Issued shares: 35,415 and 35,114 at September 30, 2003 and December 31, 2002, respectively; outstanding shares: 33,915 and 33,614 at September 30, 2003 and December 31, 2002, respectively	35			35
Additional paid-in capital	419,999			418,779
Deferred compensation and other costs	(9,863		)	(16,692		)
Accumulated other comprehensive income	1,285			1,513
Treasury stock	(20,631		)	(20,631		)
Accumulated deficit	(112,197		)	(94,338		)

Total stockholders’ equity	278,628			288,666

Total liabilities and stockholders’ equity	$	315,597		$	331,645

See accompanying notes to the condensed consolidated financial statements.

NETRATINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002

Revenue	$	10,611		$	8,698		$	29,834		$	20,294
Cost of revenue	5,029			4,659			14,428			11,187

Gross profit	5,582			4,039			15,406			9,107
Operating expenses:
Research and development	2,503			2,727			7,106			6,126
Sales and marketing	4,433			4,081			12,414			10,452
General and administrative	2,885			1,583			7,534			4,637
Restructuring and other expenses	—			—			—			6,969
Acquisition-related expenses	—			—			—			3,033
Amortization of intangibles	969			806			2,928			1,416
Amortization of stock-based compensation	2,276			2,281			6,829			7,153

Total operating expenses	13,066			11,478			36,811			39,786

Loss from operations	(7,484		)	(7,439		)	(21,405		)	(30,679		)

Equity in earnings (losses) of joint ventures	32			(266		)	(18		)	(2,377		)
Interest income, net	732			1,690			3,241			5,908
Minority interest in net loss of consolidated subsidiaries	179			39			323			39

Net loss	$	(6,541	)	$	(5,976	)	$	(17,859	)	$	(27,109	)

Basic and diluted net loss per common share	$	(0.19	)	$	(0.18	)	$	(0.53	)	$	(0.82	)

Shares used to compute basic and diluted net loss per common share	33,869			33,468			33,746			33,022

See accompanying notes to the condensed consolidated financial statements.

NETRATINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

	Nine Months Ended September 30,
	2003			2002
OPERATING ACTIVITIES
Net cash used in operating activities	$	(13,248	)	$	(5,373	)

INVESTING ACTIVITIES
Acquisition of property and equipment	(1,153		)	(1,941		)
Purchase of short term investments	(315,990		)	(320,546		)
Sale of short term investments	342,010			394,373
Acquisitions, net of cash acquired and investments in joint ventures	(1,347		)	(41,576		)

Net cash provided by investing activities	23,520			30,310

FINANCING ACTIVITIES
Proceeds from stock issuances	1,220			1,942
Stock repurchase	—			(20,630		)
Payments on capital lease obligations and notes payable	—			(89		)

Net cash provided by (used in) financing activities	1,220			(18,777		)

Effect of exchange rate fluctuations	1,393			—

Net increase in cash and cash equivalents	12,885			6,160
Cash and cash equivalents at beginning of period	84,569			87,483

Cash and cash equivalents at end of period	$	97,454		$	93,643

See accompanying notes to the condensed consolidated financial statements.

NETRATINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of NetRatings, Inc. (NetRatings or the Company) have been prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The accompanying financial statements should be read in conjunction with the audited financial statements and notes thereto included in NetRatings’ annual report on Form 10-K for the fiscal year ended December 31, 2002.

On July 18, 2003, NetRatings acquired the assets and customer contracts of NetCrawling S.A., the developer and marketer of LemonAd, Europe’s leading online advertising monitoring service. The results of operations of NetCrawling S.A. are reflected in NetRatings’ consolidated results of operations from the date of acquisition.

The financial information included herein reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of the results for the interim period. Operating results for the three and nine months ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.

2. COMPREHENSIVE LOSS

The components of comprehensive loss are as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
Net loss	$	(6,541	)	$	(5,976	)	$	(17,859	)	$	(27,109	)
Accumulated translation adjustment	(850		)	63			621			63
Unrealized gain (loss) on short-term investments	(184		)	456			(849		)	274

Comprehensive loss	$	(7,575	)	$	(5,457	)	$	(18,087	)	$	(26,772	)

3. STOCKHOLDERS’ EQUITY

The calculation of basic and diluted net loss per share is as follows (in thousands, except per share data):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
Net loss	$	(6,541	)	$	(5,976	)	$	(17,859	)	(27,109		)
Weighted-average shares of common stock outstanding	33,869			33,468			33,746			33,054
Less: weighted-average shares subject to repurchase	—			—			—			(32		)

Weighted-average shares of common stock outstanding used in computing basic and diluted net loss per share	33,869			33,468			33,746			33,022

Basic and diluted net loss per common share	$	(0.19	)	$	(0.18	)	$	(0.53	)	$	(0.82	)

As allowed by SFAS 123, the Company follows the disclosure requirements only of SFAS 148, but continues to account for its employee stock option plans in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” which results in no charge to earnings when options are issued at fair market value. Pro forma information presented below regarding net loss required under SFAS 148 has been determined as if the Company had accounted for its stock options under the fair value method of SFAS 148. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The Company’s GAAP and pro forma information follows (in thousands, except per share data):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002

Net loss	$	(6,541	)	$	(5,976	)	$	(17,859	)	$	(27,109	)
Plus: Stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects	(1,575		)	(1,844		)	(4,951		)	(5,308		)

Pro forma net loss	$	(8,116	)	$	(7,820	)	$	(22,810	)	$	(32,417	)

Basic and diluted net loss per share	$	(0.19	)	$	(0.18	)	$	(0.53	)	$	(0.82	)

Pro forma basic and diluted net loss per share	$	(0.24	)	$	(0.23	)	$	(0.68	)	$	(0.98	)

4. GOODWILL AND INTANGIBLE ASSETS

During the third quarter of 2003, NetRatings finalized the allocation of the purchase price related to its acquisition of NetValue in the third quarter of 2002, resulting in adjustments to certain asset and liability balances existing at the acquisition date and adjustments to acquisition related costs. These adjustments netted to decreases in goodwill of approximately $775,000. In addition, the Company acquired the assets and customer contracts of NetCrawling in the third quarter of 2003, for a total purchase price of approximately $1,247,000. NetCrawling had a negative net book value of approximately $288,000, which resulted in a goodwill adjustment of approximately $1,535,000.

Goodwill and other intangible assets, along with their weighted average lives as of September 30, 2003, consisted of the following (in thousands, except average life):

	Gross carrying amount		Accumulated amortization		Net		Average life

Intangible assets continuing to be amortized:
Core technologies	$	4,890	$	951	$	3,939	7
Customer contracts	2,540		1,771		769		2
Patents and other	15,682		2,631		13,051		11

Total	$	23,112	$	5,353	17,759

Goodwill					54,538

Total goodwill and other intangible assets					$	72,297

Based on the current amount of intangibles subject to amortization, the estimated amortization expense for each of the succeeding five years is as follows: $3.9 million in 2003, $3.1 million in 2004, $2.1 million in 2005 and $1.7 million in 2006 and 2007. As of December 1, 2002, the Company performed its annual evaluation of goodwill and other intangibles and no impairment was indicated. The Company will reassess the carrying value of its goodwill and intangible assets each year as of October 1, unless indicators of impairment become apparent earlier. The October 1, 2003 evaluation is currently in process.

5. RESTRUCTURING EXPENSES

In the first quarter of 2002, NetRatings’ management approved and initiated a restructuring plan intended to streamline its business to focus on core products, refine its product line and consolidate space at its Milpitas facility. The restructuring plan resulted in a reduction of 15% of NetRatings’ workforce. Accordingly, NetRatings recognized a restructuring charge of approximately $6,969,000 during the first quarter of 2002. The restructuring plan involved (i) the termination of 40 employees worldwide, all of whom have been terminated; (ii) lease termination costs and other costs associated with vacating certain facilities and abandoning certain long-lived assets; and (iii) costs incurred for discontinuation of certain services. Also, in connection with the acquisitions completed in 2002, NetRatings established additional restructuring liabilities of $7,541,000. These restructuring plans involved (i) the termination of 80 employees worldwide, all of whom have been terminated as of September 30, 2003; (ii) amounts accrued related to ongoing lease obligations for vacated properties; and (iii) costs related to contractual obligations or payments for certain products and/or projects which were eliminated as of the acquisition dates. During 2002, $7,906,000 of restructuring expenses had been paid, resulting in a remaining balance of $6,604,000 as of December 31, 2002.

During 2003, NetRatings incurred an additional $389,000 of restructuring expenses relating to the acquisitions of MMXI Switzerland and NetCrawling.

In finalizing the purchase price allocations of the Company’s acquisitions in 2002, NetRatings adjusted its restructuring liabilities based on the latest available information. These adjustments include (i) decreases in severance related liabilities that will not be paid; (ii) adjustments to estimates relating to accruals for discontinuation of certain products or services; and (iii) adjustments to estimates relating to idle facility lease commitments.

The following table summarizes activity associated with the restructuring plan as of September 30, 2003:

	Accrual as of December 31, 2002		Additions related to acquisitions in 2003		Paid through September 30, 2003			Adjustments in 2003			Accrual as of September 30, 2003

Employee severance benefits	$	2,266	$	205	$	(1,599	)	$	(752	)	$	120

Costs incurred due to discontinuation of certain services and other expenses	670		90		(593		)	(104		)	63

Lease commitments and related write-down of property and equipment	3,668		94		(1,087		)	287			2,962

Totals	$	6,604	$	389	$	(3,279	)	$	(569	)	$	3,145

6. ACQUISITIONS

During the third quarter of 2003, NetRatings acquired the assets and customer contracts of NetCrawling S.A., the developer and marketer of LemonAd, Europe’s leading online advertising monitoring service. NetRatings accounts for its acquisitions under the purchase method. The allocation of the purchase price related to this acquisition reflects the fair value of the acquired assets and liabilities. The results of operations from this acquisition are reflected in NetRatings’ consolidated results of operations from the date of acquisition.

7. INDUSTRY SEGMENT AND FOREIGN OPERATIONS

NetRatings operates in one segment for providing media and market research focused on Internet audience behavior and activity. For geographical reporting, revenues are attributed to the geographic location in which the customer is located. Long-lived assets consist primarily of property and equipment and are attributed to the geographic location in which they are located.

During the three months ended September 30, 2003, revenues of $6,360,000 and $4,251,000 were attributed to the Company’s United States and international operations, respectively. For the same period in 2002, revenues of $6,668,000 and $2,030,000 were attributed to the United States and international operations, respectively.

During the nine months ended September 30, 2003, revenues of $19,027,000 and $10,807,000 were attributed to the Company’s United States and international operations, respectively. For the same period in 2002, revenues of $17,495,000 and $2,799,000 were attributed to the Company’s United States and international operations.

During the third quarter of 2003, net losses, including allocation of expenses, were $3,982,000 and $2,559,000 for the Company’s United States and international operations, respectively. For the same period in 2002, net losses, including allocation of expenses, were $3,302,000 and $2,674,000 for the Company’s United States and international operations, respectively. Net losses for the nine month period ended September 30, 2003 were $12,239,000 and $5,620,000 for the Company’s United States and international operations, respectively, compared with $23,126,000 and $3,983,000 for the same period in 2002.

At September 30, 2003, $1,876,000 of NetRatings’ property and equipment was located in the United States and $1,334,000 was located in Europe and Asia, compared with $4,169,000 in the United States and $356,000 in Europe and Asia at September 30, 2002.

8. RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (FIN 46). FIN 46 requires that if an entity is the primary beneficiary of a variable interest entity, the assets, liabilities and results of operations of the variable interest entity should be included in the consolidated financial statements of the entity. The provisions of FIN 46 are effective for all new arrangements entered into after January 31, 2003. For those arrangements entered into prior to January 31, 2003, the provisions of FIN 46 are required to be adopted at the beginning of the first interim or annual period beginning after September 15, 2003. The adoption of the pronouncement relative to arrangements entered into subsequent to February 1, 2003 had no impact on the Company’s financial position, results of operations or cash flows. The Company does not believe any of its arrangements, including joint ventures, are variable interest entities.

In May 2003, the FASB issued SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (SFAS 150). SFAS 150 addresses how to classify and measure certain financial instruments with characteristics of both liabilities (or an asset in some circumstances) and equity. SFAS 150 requirements apply to issuers’ classification and measurement of freestanding financial instruments, including those that comprise more than one option or forward contract. It requires that all instruments with characteristics of both liabilities and equity be classified as a liability and remeasured at fair value on each reporting date. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after September 15, 2003. On October 29, 2003, the FASB decided to defer indefinitely the requirements of FASB 150 as they apply to noncontrolling interests that are classified as equity in the financial statements of a limited-life subsidiary. SFAS 150 would apply to the NetRatings investment in NetValue as the Company takes steps preparing for the voluntary liquidation of NetValue. NetRatings owns approximately 86% of the capital and has majority control over NetValue’s board. Accordingly, NetRatings accounts for the minority ownership as minority interests on its consolidated balance sheet. The Company will evaluate the impact on its financial position, results of operations or cash flows with the final decision of the FASB.

9. CONTINGENCIES

The Company is involved in certain legal proceedings. See Legal Proceedings in Part II, Item 1 of this Report. Management currently believes that the resolution of these matters will not have a material adverse impact on NetRatings’ results of operations or financial position.

10. SUBSEQUENT EVENTS

Effective November 1, 2003, the Company increased its ownership in Mediametrie eRatings from 50% to 66%. Mediametrie eRatings’ financial results will be consolidated into the Company’s financial statements in the fourth quarter of 2003.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

Some of the statements contained in this Form 10-Q (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-Q under the heading “Risk Factors That May Affect Our Performance.”

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 September 30, 2003, we had 764 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. VNU N.V., through its wholly-owned subsidiaries Nielsen Media Research and ACNielsen, controls a majority of our outstanding stock.

During 2002, we completed a number of acquisitions that expanded our portfolio of products and services in the United States and abroad. These acquisitions included the acquisitions of (i) all of the assets of the AdRelevance online advertising expenditure measurement division of Jupiter Media Metrix Inc.; (ii) all of the assets of DoubleClick’s @Plan unit; and (iii) selected assets of Jupiter Media Metrix related to their European Internet audience measurement services. We also acquired from ACNielsen Corporation, the remaining 80.1% interest in ACNielsen eRatings.com that we did not already own.

In the third quarter of 2002, we completed the acquisition of 52% of NetValue’s outstanding common stock. During the fourth quarter of 2002, we acquired additional shares of NetValue bringing our total to approximately 86% of the capital and 87.5% of the voting rights of NetValue. In July 2003, the NetValue board decided to propose to the NetValue stockholders that they resolve to dissolve NetValue and to take steps preparing for the voluntary liquidation of NetValue, which would result in NetRatings owning 100% of the capital of NetValue.

In January 2003, we acquired beneficial ownership of approximately 80% of MMXI Switzerland, a Swiss company whose business is focused in the international Internet media and market research industries. In April 2003, we acquired beneficial ownership of the remaining 20% of MMXI Switzerland. Also in April 2003, we increased our ownership interest in NetRatings Japan from approximately 49% to approximately 58%. The total purchase price for MMXI Switzerland and the additional ownership interests in NetRatings Japan was approximately $2.3 million.

In July 2003, we acquired the assets and customer contracts of NetCrawling S.A., the developer and marketer of LemonAd, Europe’s leading online advertising monitoring service. The total purchase price for NetCrawling S.A. was approximately $1.2 million.

We currently offer our products and services in eighteen 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 Japan, France and Brazil, our products and services are sold through joint ventures. As of September 30, 2003, 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 September 30, 2003, we held a 49% ownership interest in Ibope eRatings.com, and the remaining ownership interest was held by Ibope. NetRatings Japan's revenue is fully consolidated in NetRatings' financial statements. Revenue from our other 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 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 September 30, 2003, our accumulated deficit was $112.2 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 our 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. 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 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 of these matters in the aggregate 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 and 2003 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 11 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. The October 1, 2003 evaluation is currently in process.

Investments

We hold minority interests in companies having operations or technology in areas within or adjacent to our strategic focus. These joint venture entities, which are accounted for on the equity method, are non-publicly traded companies whose values are difficult to determine. 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, thereby possibly requiring an impairment charge in the future.

Results of Operations

The following table sets forth certain financial data as a percentage of revenue for the three months and the nine months indicated:

	Three months ended September 30,				Nine months ended September 30,
	2003		2002		2003		2002

Revenue	100	%	100	%	100	%	100	%
Cost of revenue	47	%	54	%	48	%	55	%
Gross profit	53	%	46	%	52	%	45	%
Operating expenses:
Research and development	24	%	31	%	24	%	30	%
Sales and marketing	42	%	47	%	42	%	52	%
General and administrative	27	%	18	%	25	%	23	%
Restructuring and other expenses	—		—		—		34	%
Acquisition-related expenses	—		—		—		15	%
Amortization of intangibles	9	%	9	%	10	%	7	%
Stock-based compensation	21	%	26	%	23	%	35	%
Total operating expenses	123	%	131	%	124	%	196	%
Loss from operations	(70	)%	(85	)%	(72	)%	(151	)%
Equity in earnings (losses) of joint ventures	—		(3	)%	—		(12	)%
Interest income, net	6	%	19	%	11	%	29	%
Minority interest in net loss of consolidated subsidiaries	2	%	—		1	%	—
Net loss	(62	)%	(69	)%	(60	)%	(134	)%

Revenue. We generate revenue primarily from the sale of our Internet audience measurement products and services. We typically sell our syndicated 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 customized products and services and from joint venture partners.

Revenue increased 22% to $10.6 million for the three month period ended September 30, 2003, compared to $8.7 million for the corresponding period in 2002. The increase in revenue was primarily due to (i) the acquisitions completed in 2003; (ii) the full consolidation of the operating results of NetRatings Japan in the second quarter of 2003; and (iii) improved renewal rates and average selling prices during prior quarters.

Revenue increased 47% to $29.8 million for the nine month period ended September 30, 2003, compared to $20.3 million for the corresponding period in 2002. The increase in revenue was primarily due to (i) the acquisitions completed during the second and third quarters of 2002 and in 2003; (ii) the full consolidation of the operating results of NetRatings Japan in the second quarter of 2003; and (iii) improved renewal rates and average selling prices during prior quarters.

As of September 30, 2003, 764 customers worldwide subscribed to our products and services. Our global contract renewal rate was 76% for the third quarter of 2003, compared with a 65% renewal rate for the third quarter of 2002. Our global average sales price was $59,000 for the third quarter of 2003, compared with $62,000 for the second quarter of 2003 and $57,000 for the third quarter of 2002. Average selling price decreased from the second quarter of 2003 due to the acquisition of NetCrawling's customer contracts, which have an average selling price of $17,000. During the three and nine month periods ended September 30, 2003, no customer accounted for more than 10% of our revenue.

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 as the data is provided over the term of the customer’s subscription agreement, as well as the royalty fees associated with certain data partnering agreements.

Cost of revenue increased 8% to $5.0 million, or 47% of revenue, for the three month period ended September 30, 2003 from $4.7 million, or 54% of revenue, for the three month period ended September 30, 2002. The increase in cost of revenue was due to (i) recruitment and panel costs related to the expansion of MegaPanel services internationally; (ii) additional cost of revenue related to the NetValue acquisition completed in the third quarter of 2002; (iii) the full consolidation of the operating results of NetRatings Japan in the second quarter of 2003; and (iv) recruitment and panel costs related to a custom panel in Germany. These increases were partially offset by a reduction in panel related fees associated with both the U.S. home and at-work panels.

Cost of revenue increased 29% to $14.4 million, or 48% of revenue, for the nine month period ended September 30, 2003 from $11.2 million, or 55% of revenue, for the nine month period ended September 30, 2002. The increase in cost of revenue was due to (i) recruitment and panel costs related to the launch of MegaPanel service in the United States and the expansion of service internationally; (ii) additional cost of revenue related to the acquisitions completed in 2002; (iii) the full consolidation of the operating results of NetRatings Japan in the second quarter of 2003; and (iv) recruitment and panel costs related to the launch of the Hispanic service in the United States and a custom panel in Germany. These increases were partially offset by a reduction in strategic partner royalty expenses related to the discontinuation of AdSpectrum and eCommercepulse in the first quarter of 2002 and a reduction in panel fees associated with both the U.S. home and at-work panels. We anticipate to continue to incur significant expenses relating to the launch of MegaPanel and the Hispanic panel services in the remaining months of 2003.

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 decreased 8% to $2.5 million for the three month period ended September 30, 2003 from $2.7 million for the comparable period in 2002. Research and development expenses represented 24% and 31% of revenue for the three month periods ended September 30, 2003 and 2002, respectively. The decrease was primarily due to savings in international engineering and research expenses; partially

offset by the increased research and development personnel and associated payroll expenses resulting from our acquisition of NetValue in the third quarter of 2002.

Research and development expenses increased 16% to $7.1 million for the nine month period ended September 30, 2003, compared to $6.1 million for the corresponding period in 2002. Research and development expenses represented 24% and 30% of revenue for the nine month periods ended September 30, 2003 and 2002, respectively. The increase was primarily due to increased research and development personnel and associated payroll expenses resulting from our acquisitions in the second and third quarters of 2002, 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, corporate marketing and other sales and marketing programs.

Sales and marketing expenses increased 9% to $4.4 million for the three month period ended September 30, 2003 from $4.1 million for the comparable period in 2002. Sales and marketing expenses represented 42% and 47% of revenue for the three month periods ended September 30, 2003 and 2002, respectively. The increase in dollars was primarily related to (i) an increase in salary-related and travel expenses as a result of additional employees from our acquisition of NetValue in the third quarter of 2002; (ii) the full consolidation of the operating results of NetRatings Japan in the second quarter of 2003; and (iii) increase in bonus and commission expenses due to higher contract sales in the third quarter of 2003. The increase is partially offset by low corporate marketing expenses in the third quarter of 2003.

Sales and marketing expenses increased 19% to $12.4 million for the nine month period ended September 30, 2003 from $10.5 million for the comparable period in 2002. Sales and marketing expenses represented 42% and 52% of revenue for the nine month periods ended September 30, 2003 and 2002, respectively. The increase in dollars was primarily related to (i) an increase in salary-related and travel expenses as a result of additional employees from our acquisitions in the second and third quarters of 2002; (ii) the full consolidation of the operating results of NetRatings Japan in the second quarter of 2003; and (iii) increase in bonus and commission expenses due to higher contract sales in the third quarter of 2003. The increases are partially offset by a reduction in public relations, corporate marketing and trade show expenses during 2003.

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 82% to $2.9 million for the three month period ended September 30, 2003 from $1.6 million for the comparable period in 2002. General and administrative expenses represented 27% and 18% of revenue for the three month periods ended September 30, 2003 and 2002, respectively. The increase was primarily related to (i) higher payroll due to the consolidation of the operating results of NetRatings Japan in the second quarter of 2003; and (ii) higher professional fees.

General and administrative expenses increased 62% to $7.5 million for the nine month period ended September 30, 2003 from $4.6 million for the comparable period in 2002. General and administrative expenses represented 25% and 23% of revenue for the nine month periods ended September 30, 2003 and 2002, respectively. The increase was primarily related to (i) higher payroll, travel and related expenses due to the acquisition of eRatings in the second quarter of 2002; (ii) higher payroll due to the consolidation of the operating results of NetRatings Japan in the second quarter of 2003; and (iii) higher professional fees.

Restructuring and Other Expenses. During the nine month period ended September 30, 2002, we incurred a charge of $7.0 million related to our restructuring plan to streamline our business to focus on core products, refine our product line and consolidate space at our Milpitas, California facility. This plan also included a 15% reduction in workforce. There were no corresponding charges in the nine month period ended September 30, 2003.

Acquisition-related Expenses. During the nine month period ended September 30, 2002, we recognized acquisition-related charges of $3.0 million related to the terminated merger between NetRatings and Jupiter Media Metrix. There were no corresponding charges in the nine month period ended September 30, 2003.

Amortization of Intangibles. Amortization of intangible expenses increased 20% to $970,000 for the three month period ended September 30, 2003 from $806,000 for the comparable period in 2002. The increase was primarily due to the amortization of specifically identified intangibles associated with the acquisition of NetValue in the third quarter of 2002. Amortization of intangible expenses increased 107% to $2.9 million for the nine month period ended September 30, 2003, compared to $1.4 million for the corresponding period in

2002. The increases were primarily due to the amortization of specifically identified intangibles associated with the acquisitions of AdRelevance, @Plan, eRatings and NetValue and other intangible assets, including patents.

Amortization of Stock-based Compensation. Stock-based compensation primarily represents amortization of deferred service costs related to stock warrants which Nielsen Media Research exercised in December 1999.

Amortization of stock-based compensation expenses were $2.3 million for the three month periods ended September 30, 2003 and 2002 respectively. Amortization of stock-based compensation expenses decreased 5% to $6.8 million, or 23% of revenue for the nine month period ended September 30, 2003 from $7.2 million, or 35% of revenue for the corresponding period in 2002. The decreases were due to the scheduled amortization of our stock-based compensation costs. We anticipate stock-based compensation costs will continue to decrease in the future in accordance with the scheduled amortization.

Equity in Earnings (Losses) of Joint Ventures. For the three month period ended September 30, 2003, gain from joint ventures was $32,000 or 0.3% of revenue. Loss from joint ventures was $266,000 or 3% of revenue for the corresponding period in 2002. The variance was primarily due to our increase in ownership in NetRatings Japan in April 2003, after which NetRatings Japan’s losses have been reported in our consolidated results rather than in loss from joint ventures. Additionally, our other joint ventures reported net income in the third quarter of 2003 compared to net loss in the corresponding period in 2002.

For the nine month period ended September 30, 2003, loss from joint ventures was $18,000 or 0.06% of revenue. Loss from joint ventures was $2.4 million or 12% of revenue for the corresponding period in 2002. The decrease in loss was primarily due to our acquisition of ACNielsen’s interest in eRatings in May 2002 and our increase in ownership in NetRatings Japan in April 2003, after which each of their losses have been reported in our consolidated results rather than in loss from joint ventures.

Interest Income, Net. Interest income, net, decreased 57% to $0.7 million for the three month period ended September 30, 2003 from $1.7 million for the comparable period in 2002. Interest income, net, decreased 45% to $3.2 million for the nine month period ended September 30, 2003 from $5.9 million for the comparable period in 2002. The decrease reflects a reduction of interest rates in the third quarter of 2003 when compared to the corresponding period in 2002. Decrease in interest income also resulted from an overall reduction in cash and cash equivalents as compared with the beginning of 2002 as a result of the repurchase of common stock from two former executives in the first quarter of 2002, acquisitions completed in 2002 and 2003 and funding normal operations. We anticipate interest income to remain at its current level or lower as the current market conditions prevail and we use cash to fund our operations.

Minority Interest. During the nine months ended September 30, 2003, we held majority interests in NetValue, MMXI Switzerland and NetRatings Japan. Minority interest in profit (loss) for the three month and nine month periods ended September 30, 2003 was $179,000 and $323,000, respectively. Minority interest in profit (loss) for both of the corresponding periods in 2002 was $39,000.

Inflation

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

Liquidity and Capital Resources

As of September 30, 2003, the Company’s cash and cash equivalents and short-term investments totaled $227.4 million. Cash used in operating activities was $13.2 million for the nine month period ended September 30, 2003, due to our net loss of $17.9 million and cash used in working capital changes of $6.4 million, which was partially offset by non-cash charges of $11.1 million. The non-cash expenses include $6.8 million for amortization of stock-based compensation, $1.4 million for depreciation and $2.9 million for amortization of intangible assets. Cash used in operating activities totaled $5.4 million for the nine month period ended September 30, 2002, due to our net loss of $27.1 million which was offset by non-cash charges of $13.6 million and cash provided in working capital changes of $8.1 million. The non-cash expenses included $7.1 million for amortization of stock-based compensation, $2.4 million related to equity in losses of joint ventures, $2.7 million for depreciation and $1.4 million for amortization of intangible assets. The changes in working capital included $2.4 million related to restructuring liabilities, $3.6 million related to deferred acquisition costs and $2.1 million of other working capital changes. We will continue to use cash to fund our operations.

Net cash provided by investing activities for the nine month period ended September 30, 2003 was $23.5 million. This amount reflects net sales of our short-term investments of $26 million, which was partially offset by the acquisition of property and equipment of $1.2 million and cash paid for acquisitions, net of cash acquired, of $1.3 million. During the corresponding period in 2002, net cash provided by investing activities was $30.3 million. Net sales of marketable securities and other investments during the period, net of proceeds and maturities, were $73.8 million, which was partially offset by investments in acquisitions and joint ventures of $41.6 million and by acquisition of fixed assets of $1.9 million. We had no material capital expenditure commitments at September 30, 2003 and anticipate that capital expenditure spending in 2003 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 potential strategic investments.

Net cash provided in financing activities totaled $1.2 million for the nine month period ended September 30, 2003, reflecting stock issued through the exercise of options and our employee stock purchase plan. Net cash used in financing activities was $18.8 million for the corresponding nine month period ended September 30, 2002. The cash used in 2002 was primarily related to $20.6 million used to repurchase 1.5 million shares of common stock from two former executive officers, partially offset by the exercise of options and the issuance of stock through the employee stock purchase plan, totaling $1.8 million.

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.

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, $38.9 million for the year ended December 31, 2002 and $17.9 million for the nine months ended September 30, 2003, and as of September 30, 2003, our accumulated deficit was $112.2 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 September 30, 1998. We introduced our Nielsen//NetRatings Internet Audience Measurement Service in the quarter ended September 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:

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

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

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

• 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 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:

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

• 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;

• 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;

• 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;

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

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

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

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 a large percentage 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.

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 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:

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

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

• the availability of data across various geographic areas;

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

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

• 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:

• devote greater resources to marketing and promotional campaigns;

• adopt more aggressive pricing policies; or

• 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 VARIOUS SERVICES RELATED TO OUR INTERNATIONAL OPERATIONS

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, France, and Japan have been developed and maintained 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, INCLUDING PANELS FOR OUR MEGAPANEL SERVICE, 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 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. Recruiting panelists for our MegaPanel service has required significant investment and there can be no assurance that we will be able to achieve or maintain panels of sufficient size to meet client demand. There can also be no assurance that we will be successful in achieving substantial sales of our MegaPanel service in the United States or internationally.

THE RECENT ECONOMIC DOWNTURN ADVERSELY AFFECTED OUR BUSINESS

General economic conditions during the past two years, 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, was 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. We do not know the extent to which our business and financial results may improve if there is a sustained improvement in general economic conditions.

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 our international operations will depend on our ability to:

• effectively select the appropriate countries to serve;

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

• control costs and effectively manage foreign operations;

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

• 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:

• changes in regulatory requirements;

• deficiencies in the telecommunications infrastructure in some countries;

• reduced protection for intellectual property rights in some countries;

• more rigorous levels of privacy protection in some countries;

• potentially adverse tax consequences;

• 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.

THE CONTINUED OPERATION OF A PUBLIC COMPANY SUBSIDIARY IN FRANCE COULD RESULT IN ADDITIONAL OPERATING EXPENSES

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 July 2003, the NetValue board decided to propose to the NetValue stockholders that they resolve to dissolve NetValue and take steps preparing for the voluntary liquidation of NetValue, which would result in NetRatings owning 100% of the capital of NetValue. If the voluntary liquidation of NetValue is not completed, or not completed in a timely manner, 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.

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. 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.

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.

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. While the issuer defendants have been engaged in settlement negotiations with the plaintiffs, there is no assurance that a settlement will be reached with the plaintiffs. 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 complaint against The NPD Group alleging that NPD is using methods for computer use tracking that infringes one of our patents for computer use tracking (United States Patent No. 6,115,680). In addition, the complaint alleges that NPD breached an agreement between NetRatings and NPD which provided NPD with a limited license to use the patented technology. There is no assurance that we will be successful in the lawsuit against NPD.

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, 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 and 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.

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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of September 30, 2003, we had cash and cash equivalents and short-term investments of $227.4 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 September 30, 2003, our investments had a weighted-average time to maturity of approximately 243 days.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.

Internal Control Over Financial Reporting There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

A class action lawsuit was filed on November 6, 2001 in the United States District Court for the Southern District of New York on behalf of purchasers of our common stock alleging violations of federal securities laws. The case is now designated as In re NetRatings, Inc. Initial Public Offering Securities Litigation, related to In re Initial Public Offerings Securities Litigation. The case is brought purportedly on behalf of all persons who purchased the Company’s common stock from December 8, 1999 through December 6, 2000. The complaint names as defendants NetRatings; two of our former officers or directors; and investment banking firms that served as underwriters for our initial public offering in December 1999. The Plaintiffs electronically served an amended complaint on or about April 19, 2002. The amended complaint alleges violations of Section 11 and 15 of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934, on the grounds that the prospectus incorporated in the registration statement for the offering failed to disclose, among other things, that (i) the underwriters had solicited and received excessive and undisclosed commissions from certain investors in exchange for which the underwriters allocated to those investors material portions of the shares of our stock sold in the initial public offering, and (ii) the underwriters had entered into agreements with customers whereby the underwriters agreed to allocate shares of our stock sold in the initial public offering to those customers in exchange for which the customers agreed to purchase additional shares of our stock in the aftermarket at pre-determined prices. The amended complaint also alleges that false analyst reports were issued following the IPO. No specific damages are claimed.

We are aware that similar allegations have been made in lawsuits relating to more than 300 other initial public offerings conducted in 1999 and 2000. Those cases, including our case, have been consolidated for pretrial purposes before the Honorable Judge Shira A. Scheindlin. On July 15, 2002, we (as well as the other issuer defendants) filed a motion to dismiss the complaint. The motions were heard on November 1, 2002. In February 2003, the judge granted the motion to dismiss certain of the claims against NetRatings and the two individual defendants and denied the motion to dismiss certain other claims against NetRatings and the two individual defendants. We believe that the remaining claims against us and our officers and directors are without merit and intend to defend them vigorously. The issuer defendants and the plaintiffs have been engaged in settlement negotiations and it is possible that the issuer defendants and the plaintiffs will reach a settlement. However, there can be no assurance that a settlement will be reached in this matter. Our management currently believes that the resolution of this matter will not have a material adverse impact on our financial position. However, an adverse outcome could materially affect our results of operations and financial position.

On March 17, 2003, we filed a complaint against The NPD Group, Inc. in the United States District Court for the District of Delaware. The complaint alleges that NPD is using methods for computer use tracking that infringes one of our patents for computer use tracking (United States Patent No. 6,115,680). In addition, the complaint alleges that NPD breached an agreement between NetRatings and NPD which provided NPD with a limited license to use the patent technology. On May 5, 2003, NPD filed its answer to the complaint. In the answer, NPD denied that it has infringed the patent or the agreement between NetRatings and NPD. The parties are currently engaged in discovery proceedings.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibit Number		Exhibit

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

On July 31, 2003, we furnished a Report on Form 8-K pursuant to Items 7 and 12 of such form regarding our announcement of the Company’s financial results for the second quarter of 2003. Subsequent to the end of the third quarter, on November 5, 2003, we furnished a report on Form 8-K pursuant to Items 7 and 12 of such form regarding our announcement of the Company’s financial results for the third quarter of 2003.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 14, 2003
	NETRATINGS, INC.
	By:	/s/ Todd Sloan

		Todd Sloan Executive Vice President of Corporate Development, Chief Financial Officer And Secretary (Principal Accounting and Financial Officer)

	By:	/s/ William Pulver

		William Pulver President, Chief Executive Officer and Director