UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2007

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 or organization)		(I.R.S. Employer Identification No.)
120 West 45th Street, 35th Floor New York, New York		10036
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (212) 703-5900

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 x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer x

Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes o No x

The number of shares of the Registrant’s Common Stock outstanding as of April 30, 2007, was 36,078,892.

NETRATINGS, INC. FORM 10-Q INDEX

Part I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets—March 31, 2007 (Unaudited) and December 31, 2006	3
	Condensed Consolidated Statements of Operations—Three months ended March 31, 2007 and 2006 (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows—Three months ended March 31, 2007 and 2006 (Unaudited)	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18
Item 4.	Controls and Procedures	18
Part II.	OTHER INFORMATION	20
Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 6.	Exhibits	20
	Signatures	21

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

NETRATINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)

	March 31, 2007				December 31, 2006
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	57,251			$	52,180
Short-term marketable securities		115,560				119,513
Accounts receivable, net		26,070				26,329
Prepaid expenses and other current assets		4,004				3,544
Total current assets		202,885				201,566
Long-term marketable securities		12,927				15,320
Property and equipment, net		9,413				9,582
Intangibles, net		10,307				10,901
Goodwill		76,151				76,301
Other assets		1,848				1,803
Total assets		$	313,531			$	315,473
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	3,220			$	3,600
Accrued liabilities		11,966				13,444
Deferred revenue		19,100				17,632
Due to related parties		3,431				5,947
Restructuring liabilities		331				354
Total current liabilities		38,048				40,977
Restructuring liabilities, less current portion		—				64
Total liabilities		38,048				41,041
Minority interest		2,250				2,221
Commitments and contingencies
Stockholders’ equity:
Common stock, par value $0.001:
Authorized shares: 200,000
Issued shares: 39,063 and 38,723 at March 31, 2007 and December 31, 2006, respectively; outstanding shares: 35,563 and 35,277 at March 31, 2007 and December 31, 2006, respectively		39				39
Additional paid-in capital		459,931				457,926
Accumulated other comprehensive income		2,935				2,858
Treasury stock		(47,282		)		(46,154		)
Accumulated deficit (Note 11)		(142,390		)		(142,458		)
Total stockholders’ equity		273,233				272,211
Total liabilities and stockholders’ equity		$	313,531			$	315,473

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 March 31,
	2007			2006
Revenue	$	21,958		$	18,280
Cost of revenue(1)	6,159			5,632
Gross profit	15,799			12,648
Operating expenses:
Research and development(1)	3,516			2,931
Sales and marketing(1)	6,671			6,790
General and administrative(1)	4,111			3,817
Acquisition related expenses	1,888			—
Amortization of intangible assets(2)	594			594
Total operating expenses	16,780			14,132
Loss from operations	(981		)	(1,484		)
Interest income, net	1,956			1,161
Minority interest in net income of consolidated subsidiaries	(29		)	(163		)
Net income (loss) before provision for income taxes and cumulative effect of change in accounting principle	946			(486		)
Provision for income taxes	(753		)	(138		)
Net income (loss) before cumulative effect of change in accounting principle	193			(624		)
Cumulative effect of change in accounting principle	—			369
Net income (loss)	$	193		$	(255	)
Net income (loss) per share—basic:
Before cumulative effect of change in accounting principle	$	0.01		$	(0.02	)
Cumulative effect of change in accounting principle	—			0.01
Net income (loss) per common share—basic	$	0.01		$	(0.01	)
Net income (loss) per share—diluted:
Before cumulative effect of change in accounting principle	$	0.01		$	(0.02	)
Cumulative effect of change in accounting principle	—			0.01
Net income (loss) per common share—diluted	$	0.01		$	(0.01	)
Shares used to compute net income (loss) per common share—basic	35,397			34,705
Shares used to compute net income (loss) per common share—diluted	36,892			34,705

(1) Includes the following amounts of amortization of stock-based compensation:

Cost of revenue	$	39	$	66
Research and development	463		288
Sales and marketing	201		443
General and administrative	365		367
Total amortization of stock-based compensation	$	1,068	$	1,164

(2) Amortization of intangible assets:

Cost of revenue	$	444	$	444
Sales and marketing	150		150
Total amortization of intangible assets	$	594	$	594

See accompanying notes to the condensed consolidated financial statements.

NETRATINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)

	Three Months Ended March 31,
	2007			2006
OPERATING ACTIVITIES
Net cash (used in) provided by operating activities	$	(1,226	)	$	1,761
INVESTING ACTIVITIES
Acquisition of property and equipment	(1,039		)	(1,845		)
Purchase of investments	(30,644		)	(23,735		)
Sale of investments	10,289			23,003
Maturity of investments	26,700			18,850
Net cash provided by investing activities	5,306			16,273
FINANCING ACTIVITIES
Proceeds from issuance of common stock	905			1,126
Stock repurchases	—			(11,588		)
Net cash provided by (used in) financing activities	905			(10,462		)
Effect of exchange rate fluctuations	86			316
Net increase in cash and cash equivalents	5,071			7,888
Cash and cash equivalents at beginning of period	52,180			34,940
Cash and cash equivalents at end of period	$	57,251		$	42,828

See accompanying notes to the condensed consolidated financial statements.

NETRATINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements of NetRatings, Inc. (“NetRatings” or the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

As of March 31, 2007, the Company’s significant accounting policies and estimates, which are detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, have not changed from December 31, 2006.

The accompanying interim condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the Company’s consolidated financial position, results of operations and cash flows. Operating results for the three months ended March 31, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.

Recent Accounting Pronouncements

In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. SFAS 159 is effective for the Company beginning in the first quarter of fiscal year 2008, although earlier adoption is permitted. The Company is currently evaluating the impact of adopting SFAS 159 on its financial position, results of operations and cash flows.

2. COMPREHENSIVE INCOME (LOSS)

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

	Three Months Ended March 31,
	2007				2006
Accumulated translation adjustment		$	3,060			$	(329	)
Unrealized loss on short-term investments		(125		)		(699		)
Accumulated other comprehensive income (loss)		$	2,935			$	(1,028	)

3. COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE

The Company computes net income (loss) per common share based on SFAS No. 128, “Earnings Per Share” (“SFAS 128”). In accordance with SFAS 128, basic net income (loss) per share is calculated as net income (loss) divided by the weighted-average number of common shares outstanding. Diluted net income

(loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding and dilutive common stock equivalents outstanding during the period.

Prior to the second quarter of 2006, the Company had experienced net losses. As a result, common equivalent shares from stock options were excluded from the calculation of net loss per common share as their effect was anti-dilutive. If NetRatings had recorded net income for the three months ended March 31, 2006, the calculation of historical diluted earnings per share would have included approximately 0.7 million additional common equivalent shares related to outstanding stock awards (determined using the treasury stock method).

The following table sets forth the computation of basic and diluted net income (loss) per share, determined using the treasury stock method for the three months ended March 31, 2007 and 2006 (in thousands, except per share amounts):

	March 31,			March 31,
	2007			2006
Net income (loss) before cumulative effect of change in accounting principle		$	193		$	(624	)
Cumulative effect of change in accounting principle		—			369
Net income		$	193		$	255
Weighted average number of shares:
Basic		35,397			34,705
Effect of dilutive stock options		480			—
Effect of dilutive restricted stock grants		1,015			—
Diluted		36,892			34,705
Net income (loss) per share—basic		$	0.01		$	(0.01	)
Net income (loss) per share—diluted		$	0.01		$	(0.01	)

4. OTHER ASSETS

Other assets include (i) receivables from the Company’s joint venture in Latin America, Ibope eRatings.com, (ii) restricted cash held in the form of long-term security deposits related to the Company’s office leases in Seattle, New York, London and Sydney and (iii) other miscellaneous assets. Receivables from Ibope eRatings.com, before reserves, were approximately $1.1 million at March 31, 2007 and December 31, 2006.

5. PATENT ENFORCEMENT PROGRAM AND LICENSING REVENUE

In 2005, NetRatings commenced a patent enforcement program to protect the Company’s investments in its patented technologies related to the collection, analysis and reporting of Internet and/or computer usage and activity. The Company’s licensing arrangements may be structured in a variety of different ways, including lump sum payments, short-term payments or payments over an extended period. As a result, the Company’s licensing revenues could be significantly higher or lower from one period to a subsequent period. Legal expenses related to the Company’s patent enforcement program are included in general and administrative expenses. Total licensing revenue for the three months ended March 31, 2007 and 2006 was $1.0 million and $1.2 million, respectively.

6. STOCK-BASED COMPENSATION

For the three months ended March 31, 2007, the Company recognized stock-based compensation expense of $1.1 million, which included $0.9 million for restricted stock awards, $0.1 million for stock option grants and $0.1 million for shares issued under the Company’s employee stock purchase plan.

Valuation Assumptions

SFAS No. 123R requires the use of a valuation model to calculate the fair value of stock-based awards. No stock options were granted during the three months ended March 31, 2007 and 2006, respectively. In February 2007, the Company discontinued participation in its employee stock purchase plan. The Company uses the Black-Scholes option-pricing model, which incorporates various assumptions including volatility, expected life and interest rates, to estimate fair value. The following weighted average assumptions were used for the three months ended March 31, 2007 and 2006:

	March 31,
	2007		2006
Employee stock purchase plan:
Risk-free interest rate	5.18	%	4.53	%
Dividend yield	0	%	0	%
Volatility	33	%	30	%
Expected life in years	0.5		0.5

Stock-Based Compensation Activity

Information with respect to the stock plan activity and related information for the three months ended March 31, 2007, is set forth in the following table:

				Restricted Stock Outstanding						Stock Options Outstanding
	Available for Grant			Number of Restricted Shares			Weighted Average Grant Date Fair Value			Number of Stock Options			Weighted Average Exercise Price			Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Balance at December 31, 2006		419,000			774,000			$	13.77		2,225,000			$	10.76		5.4	$	13,804,000
Granted		(1,000	)		1,000			18.09			—			—
Exercised/released		—			(249,000	)		14.20			(48,000	)		9.35
Restricted stock withheld for taxes(1)		55,000			—			—			—			—
Canceled		18,000			(15,000	)		13.49			(3,000	)		9.66
Balance at March 31, 2007		491,000			511,000			$	13.57		2,174,000			$	10.79		5.4	$	22,326,000
Options exercisable at March 31, 2007											2,012,000			$	10.74		5.3	$	20,831,000
Unvested shares as of March 31, 2007					511,000			$	13.57		162,000			$	11.20

(1) Upon the release of certain shares of restricted stock, the Company withheld shares to satisfy certain minimum statutory tax withholding obligations of the holder based on the market value of the shares on the date the shares of restricted stock were released.

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on the Company’s closing stock price of $20.80 on March 31, 2007, which would have been received by holders of stock options had all holders of stock options exercised their stock options that were in-the-money as of that date. The total number of in-the-money stock options exercisable as of March 31, 2007 was

approximately 2.0 million shares. The aggregate intrinsic value of stock options exercised during the three month period ended March 31, 2007 was $0.4 million.

As of March 31, 2007, there was $4.1 million of total unrecognized compensation expense related to unvested stock-based compensation arrangements granted under the Company’s stock plan and employee stock purchase plan. Total expense is expected to be recognized over the weighted-average period of 1.3 years.

7. GOODWILL AND INTANGIBLE ASSETS

During the three months ended March 31, 2007, the Company used net operating loss carryforwards of acquired companies, resulting in a decrease in goodwill of approximately $0.1 million. Goodwill and other intangible assets, along with their weighted average lives as of March 31, 2007, consisted of the following (in thousands, except weighted average life):

	Gross carrying amount		Accumulated amortization			Net		Weighted average life
Intangible assets continuing to be amortized:
Core technologies	$	5,482		$	3,669	$	1,813		7
Customer contracts	4,940			4,490		450			3
Patents and other	15,682			7,638		8,044			11
Total other intangible assets	$	26,104		$	15,797	$	10,307
Goodwill						$	76,151

Based on the current amount of intangible assets subject to amortization, the estimated amortization expense for each of the succeeding five years is as follows: 2007: $2.4 million; 2008: $1.8 million; 2009: $1.4 million; 2010: $1.1 million; and 2011: $1.0 million. As of October 1, 2006, 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.

8. RESTRUCTURING LIABILITIES

The Company’s restructuring liabilities relate to an acquisition in 2002 for which a lease commitment accrual remains.

The following table summarizes activity associated with these restructuring liabilities during the three month period ended March 31, 2007 (in thousands):

	Accrual as of December 31, 2006			Utilized Cash				Accrual as of March 31, 2007
Lease commitments		$	418		$	(87	)		$	331

9. 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. The Company’s geographic regions include the United States (US), Europe, Middle East and Africa (EMEA), and Asia Pacific and Latin America (APLA). Long-lived assets consist primarily of property and equipment and are attributed to the geographic location in which they are located. Licensing revenue from the Company’s patent enforcement program is attributed to the US region.

The following tables set forth revenue and property and equipment (in thousands):

	Three Months Ended March 31, 2007								Three Months Ended March 31, 2006
	US		EMEA		APLA		Total		US		EMEA		APLA		Total
Revenue	$	11,552	$	5,506	$	4,900	$	21,958	$	9,359	$	5,172	$	3,749	$	18,280

	March 31, 2007								December 31, 2006
	US		EMEA		APLA		Total		US		EMEA		APLA		Total
Property and equipment	$	5,033	$	1,764	$	2,616	$	9,413	$	4,910	$	1,829	$	2,843	$	9,582

10. CONTINGENCIES

The Company is involved in certain legal proceedings. See Legal Proceedings in Part I, Item 3 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006. Management currently believes that the resolution of these matters, and other pending legal matters that do not presently require disclosure in Legal Proceedings, will not have a material adverse impact on the Company’s financial position, results of operations or cash flows.

11. INCOME TAXES

The Company’s tax provision for interim periods is determined using an estimate of its annual effective tax rate for each of its legal entities. The Company recorded income tax provision of $0.8 million and $0.1 million for the three month periods ended March 31, 2007 and 2006, respectively, primarily related to its foreign operations. Taxes related to the Company’s domestic operations were primarily offset by net operating loss carryforwards.

The Company adopted the provisions of FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes (“FIN 48”) an interpretation of FASB Statement No. 109 (“SFAS 109”) on January 1, 2007. FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. The adoption of FIN 48 resulted in a decrease in accumulated deficit at January 1, 2007 of approximately $0.1 million. Including the decrease noted above, the Company had approximately $0.6 million of total gross unrecognized tax benefits. Future changes in the remaining balance of unrecognized tax benefits will have no impact on the effective tax rate as they are subject to a full valuation allowance. There was no change to the Company's unrecognized tax benefits for the three month period ended March 31, 2007.

The Company recognized no interest or penalties related to uncertain tax positions in income tax expense. The Company does not have any material accrued interest or penalties associated with any unrecognized tax benefits.

The Company files annual U.S. federal, state and local income tax returns, as well as annual income tax returns in various foreign jurisdictions. While it is often difficult to predict the final outcome or timing of resolution of any particular uncertain tax position, the Company believes that its unrecognized tax reserves reflect the most probable outcome. The Company adjusts these unrecognized tax reserves, as well as any related interest, in light of changing facts and circumstances. Settlement of any particular uncertain tax position would usually require the use of cash. The resolution of a matter could be recognized as an adjustment to the Company’s provision for income taxes and the Company’s effective tax rate in the period of resolution. The Company's U.S. federal income tax returns, as well as income tax returns in most states, are subject to examination due to the Company’s net operating loss and overall credit carryforward position. With few exceptions, the Company is no longer subject to examination by foreign tax authorities for years prior to 2002.

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. These risks and uncertainties include, but are not limited to, those described in this Report, in Part II, “Item 1A. Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2006, and those described from time to time in our future reports filed with the Securities and Exchange Commission.

Summary

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.

The Nielsen Company B.V., through its subsidiaries ACNielsen Corporation and Nielsen Media Research, owns approximately 60% of our outstanding common stock. On February 5, 2007, we, Nielsen Media Research and NTRT Acquisition Sub, Inc., a newly-formed and wholly-owned subsidiary of Nielsen Media Research, entered into an Agreement and Plan of Merger, under which NTRT Acquisition Sub will merge with and into us, which will result in The Nielsen Company and its subsidiaries owning all of our common stock. Upon completion of the merger, holders of our common stock (other than Nielsen Media Research, any other direct or indirect subsidiary of The Nielsen Company and any stockholders who perfect their appraisal rights under Delaware law) will have the right to receive $21.00 in cash, without interest, for each share of our common stock held immediately prior to completion of the merger. For more information regarding the proposed transaction, please see the preliminary proxy statement filed by us with the SEC, and the related Schedule 13E-3 filed with the SEC by us, The Nielsen Company, Nielsen Media Research, ACNielsen and NTRT Acquisition Sub. The Nielsen Company is a wholly-owned indirect subsidiary of Valcon Acquisition Holding (Luxembourg) S.a.r.l.

Our revenues for the first quarter of 2007 totaled $22.0 million, compared to $22.0 million in the fourth quarter of 2006 and $18.3 million in the first quarter of 2006. As of March 31, 2007, we had 1,850 clients, compared to 1,851 clients as of December 31, 2006 and 1,679 clients as of March 31, 2006. The increase in our number of clients from March 31, 2006 to March 31, 2007 is the result of organic growth in our business.

Our revenue growth from the first quarter of 2006 to the first quarter of 2007 is due to (i) organic growth in our overall product portfolio and (ii) the effect of fluctuating exchange rates relating to our international operations. Our revenues remained unchanged from the fourth quarter 2006 to the first quarter of 2007 due to an increase in sales of our product portfolio, which was offset by a reduction in patent licensing revenue.

As of March 31, 2007, our accumulated deficit was $142.3 million. Since the beginning of 2002, we have made significant progress in reducing our operating losses and net losses. Our operating loss decreased from $39.9 million in 2002 to $29.7 million in 2003, $20.2 million in 2004, $11.9 million in 2005, $1.4 million in 2006, and our operating loss for the first three months of 2007 was $1.0 million. Likewise, our net loss decreased from $38.9 million in 2002 to $25.1 million in 2003, $17.4 million in 2004 and $8.4 million in 2005. We recorded net income of $2.8 million and $0.2 million for 2006 and the first three months of 2007, respectively. The operating loss and net income amounts for 2006 and 2007 include acquisition related expenses of $0.8 million and $1.9 million, respectively. We expect that we will make further progress in improving our operating and net income results during the remainder of 2007.

As of March 31, 2007, our cash and cash equivalents and marketable securities totaled $185.7 million, which we believe is sufficient to meet our cash needs for at least the next twelve months.

Industry Trends

The success of our business depends heavily on the continued expansion of the Internet for advertising, commerce and communications. Internet advertising, e-commerce and the number of people using the Internet, particularly through the use of Internet broadband connections, have dramatically increased in recent years, and we expect this growth to continue in upcoming years around the world. These growth trends have made the Internet an increasingly important component of companies’ overall business strategies. As a result, companies conducting business online are increasingly seeking analysis and insights to (i) define and reach their target audiences, (ii) measure the effectiveness of their advertising and marketing strategies, (iii) benchmark their performance with their competitors and (iv) increase brand equity and commerce revenue.

Companies are also increasingly recognizing that, compared with other media, the Internet allows online market participants to obtain a unique understanding of consumer behavior. Unlike with other forms of advertising, including print, radio and television, advertisers can (i) target advertising in an unprecedented manner, (ii) confirm whether consumers have actually viewed advertisements (and when) and (iii) decipher whether consumers have taken certain actions, whether completing a purchase or visiting a Web site, and understand exactly why. Because of the unique dynamics of the Internet, we expect that Internet advertising and commerce will not only continue to grow in coming years, but that Internet advertising and commerce will garner a larger percentage of total advertising and commerce dollars. We believe that this growth will require a commensurate increase in Internet media and market research, and that we are particularly well-suited to address the global needs of online participants.

Product Portfolio

Our goal for the last few years has been to offer the most comprehensive global portfolio of Internet media and market research products and services. In order to reach this goal, we have focused on both strategic acquisitions in the United States and abroad and investing in new products to meet changing marketplace needs. As a result of these efforts, we currently offer a wide range of products and services in the United States and in many countries throughout Europe, Asia Pacific and Latin America. We believe that this product portfolio and breadth of coverage will enable us to continue to increase our client base, increase our ability to sell multiple products to clients and increase the total sales to individual clients.

In 2002, we acquired AdRelevance, our online advertising expenditure service, and @Plan, which provides demographic, lifestyle and product preference information. During 2002, we also made strategic acquisitions designed to expand our NetView service around the world, which provides detailed panel-based Internet audience information. These included our acquisition of NetValue S.A., an international provider of Internet audience measurement services, and the purchase from ACNielsen Corporation of the 80.1% interest in ACNielsen eRatings.com that we did not already own. Since the beginning of 2003, we

acquired LemonAd (now branded AdRelevance), our international online advertising measurement service, and Red Sheriff, a global provider of site-centric-based Internet audience measurement tools.

In conjunction with these strategic acquisitions, we have also devoted significant resources to internal product development. Our key new products and services include (i) MegaPanel, which includes our vertical offerings MegaView Financial, MegaView Retail, MegaView Search, MegaView Travel and MegaView Local, and (ii) VideoCensus, which tracks video streams consumed online. We believe these new products and services, as well as additional MegaPanel offerings, will be important to our financial performance in the future.

Revenue Overview

We generate revenues primarily from the sale of our Internet media and market research products and services, which include both syndicated products and customized products. Syndicated products currently represent a significant majority of our total revenues, and our goal is for syndicated products to continue to represent a significant majority of our total revenues. We also generate revenues from the licensing of our patents.

In France, Japan and Latin America, we offer many of our services through strategic relationships with leading local market research and information services companies. We currently own 56.8% of NetRatings Japan, our Japanese subsidiary, while the remaining ownership interest is owned by TransCosmos, Dentsu.com and other investors. We currently own 66% of Mediametrie NetRatings, our French subsidiary, and the remainder is owned by Mediametrie. We have consolidated the operating results of NetRatings Japan and Mediametrie NetRatings in our consolidated financial statements since the respective dates we acquired majority control of these companies. We currently own 49% of Ibope eRatings.com, our Latin American joint venture, and the remainder is owned by Ibope. NetRatings uses the equity method to account for its investment in Ibope eRatings.com. In each of these locations, revenue is allocated between NetRatings and the subsidiary or joint venture company depending on the location of the customer and the location of the panel whose data is used in the service. As a result of the Red Sheriff acquisition, we also obtained a 50% ownership interest in an Italian company, Red Sheriff S.r.l., which offers site-centric-based services in Italy. On February 25, 2005, we purchased the remaining 50% of Red Sheriff S.r.l., and we subsequently renamed the company NetRatings Italia S.r.l. As a result of this acquisition, we have consolidated the operating results of NetRatings Italia in our consolidated financial statements beginning in the second quarter of 2005.

We have experienced revenue growth in each of the years since we launched our first product in 1999, and the revenue growth since 2002 is shown in the table below:

Years ended December 31:	Revenues
	(in thousands)
2002		$	29,706
2003		$	41,432
2004		$	59,294
2005		$	69,017
2006		$	81,769

Three months ended March 31:
2006	$	18,280
2007	$	21,958

We expect our 2007 revenues to exceed our 2006 revenues, primarily as a result of sales from our new products and services, price increases for our existing products and services and the launch of our new and existing products and services in new international territories.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations discuss 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 revenue recognition, collectibility of receivables, the valuation of fixed assets, goodwill, intangible assets, including depreciable lives assigned, marketable securities and income taxes, as well as the estimates and judgments relating to the valuation of certain liabilities, including restructuring liabilities, service periods for stock awards with performance criteria, and contingencies and litigation. Our management bases its estimates and judgments about the carrying values of assets and liabilities on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies and estimates detailed in our Annual Report on Form 10-K for the year ended December 31, 2006 have not changed from December 31, 2006 to March 31, 2007, except as follows:

Income Taxes

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”), which provides specific guidance on the financial statement recognition, measurement, reporting and disclosure of uncertain tax positions taken or expected to be taken in a tax return. FIN 48 addresses the manner in which tax positions, either permanent or temporary, should be reflected in the financial statements.

In accordance with the adoption of FIN 48, we evaluate our tax positions to determine if it is more likely than not that a tax position is sustainable, based on its technical merits. If it is more likely than not that a tax position is not sustainable, a full reserve is established. If it is more likely than not that a tax position is sustainable, we measure the benefit at the greatest cumulative probability of being realized and establish a reserve for the balance. A material change in our tax reserves could have a significant impact on our financial position, results of operations or cash flows.

Results of Operations

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

	Three Months Ended March 31,
	2007			2006
Revenue		100	%		100	%
Cost of revenue		28	%		31	%
Gross profit		72	%		69	%
Operating expenses:
Research and development		16	%		16	%
Sales and marketing		30	%		37	%
General and administrative		19	%		21	%
Acquisition related expenses		9	%		—
Amortization of intangible assets		3	%		3	%
Total operating expenses		77	%		77	%
Loss from operations		(5	)%		(8	)%
Interest income, net		9	%		7	%
Minority interest in net profit of consolidated subsidiaries		—			(1	)%
Net income (loss) before provision for income taxes and cumulative effect of change in accounting principle		4	%		(2	)%
Provision for income taxes		(3	)%		(1	)%
Net income (loss) before cumulative effect of change in accounting principle		1	%		(3	)%
Cumulative effect of change in accounting principle		—			2	%
Net income (loss)		1	%		(1	)%

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. We also derive a portion of our revenue from our customized products and services. We also receive revenues from licensing our patents.

As of March 31, 2007, 1,850 customers worldwide subscribed to our products and services compared to 1,679 customers worldwide as of March 31, 2006. The increase of 171 customers since March 31, 2006 is the result of organic growth in our global customer base. We expect our global customer base to increase in the next few quarters as we expand our product portfolio in our existing geographic markets.

Our global client renewal rate was 85% for the first quarter of 2007, an increase over the global client renewal rate of 84% for the first quarter of 2006 and a decrease over the global client renewal rate of 86% for the fourth quarter of 2006. Our global average sales price was $44,000 for the first quarter of 2007 and $42,000 for the first quarter of 2006. The increase in the global average sales prices was due to the non-renewal of several small contracts with low average sales price. During the three month period ended March 31, 2007, no customer accounted for more than 10% of our revenue.

Revenue increased 20% to $22.0 million for the three month period ended March 31, 2007, compared to $18.3 million for the three month period ended March 31, 2006. The increase in revenue was primarily due to (i) organic growth in sales of our product portfolio and (ii) the impact of fluctuating exchange rates relating to our international operations.

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 data centers. Accordingly, such expenses are not necessarily 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.

Cost of revenue increased 9% to $6.2 million for the three month period ended March 31, 2007, compared to $5.6 million for the three month period ended March 31, 2006. The increase in cost of revenue was primarily due to (i) an increase in global MegaPanel build and online recruitment costs and (ii) depreciation and maintenance expenses related to additional capital expenditures in our data centers. As a percentage of revenue, our cost of revenue decreased to 28% for the three month period ended March 31, 2007 from 30% for the three month period ended March 31, 2006. This decrease as a percentage of revenue is primarily due to organic sales growth in our product portfolio.

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, except for costs related to internally developed software, which are capitalized and subsequently depreciated when the development of the software is completed.

Research and development expenses increased 20% to $3.5 million, or 16% of revenue, for the three month period ended March 31, 2007 from $2.9 million, or 16% of revenue, for the three month period ended March 31, 2006. The increase is primarily due to (i) additional amortization of engineering costs related to internally developed software; (ii) additional stock-based compensation expense; and (iii) additional engineering personnel.

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 decreased 2% to $6.7 million, or 30% of revenue, for the three month period ended March 31, 2007 from $6.8 million, or 37% of revenue, for the comparable period in 2006. The decrease was primarily due to reductions in stock-based compensation expense, partially offset by increases in global sales commission expense.

General and Administrative. General and administrative expenses consist primarily of salaries and related costs for executive management; finance and accounting; human resources; legal; information technology and other administrative personnel. General and administrative expenses also include professional fees, including professional fees for our patent enforcement program, and other general corporate expenses.

General and administrative expenses increased 8% to $4.1 million, or 19% of revenue, for the three month period ended March 31, 2007 from $3.8 million, or 21% of revenue, for the comparable period in 2006. The increase in general and administrative expenses is primarily due to (i) additional legal expenses related to a number of pending litigations and our patent enforcement program and (ii) additional finance and human resources personnel. The increase was partially offset by reductions in professional fees.

Acquisition Related Expenses. On October 6, 2006, our board of directors received a proposal from The Nielsen Company B.V. to acquire our outstanding publicly held minority stake. A special committee of the board of directors was appointed to evaluate the offer and, subsequently, engaged legal and financial advisors. On February 5, 2007, we, Nielsen Media Research and NTRT Acquisition Sub, Inc., a newly-formed and wholly-owned subsidiary of Nielsen Media Research, entered into an Agreement and Plan of Merger, under which NTRT Acquisition Sub will merge with and into us, which will result in The Nielsen Company and its subsidiaries owning all of our common stock. The acquisition related expenses of $1.9 million reflect the expenses incurred in connection with this transaction. There were no corresponding fees in the first quarter of 2006.

Amortization of Intangible Assets. Amortization of intangible assets was unchanged at $0.6 million, or 3% of revenue, for the three month periods ended March 31, 2007 and 2006.

Interest Income, Net. Interest income, net, increased 68% to $2.0 million for the three month period ended March 31, 2007, from $1.2 million for the three month period ended March 31, 2006. The increase in interest income was due (i) to higher investment balances for the three month period ended March 31, 2007, compared to the three month period ended March 31, 2006 and (ii) to an overall higher interest yield on our investments during the first quarter of 2007.

Minority Interest. Minority interest was $29 thousand and $0.2 million for the three month periods ended March 31, 2007 and 2006, respectively. The minority interest for each of these periods represents the minority share of the profits from Mediametrie NetRatings, our French subsidiary, and NetRatings Japan, our Japanese subsidiary.

Provision for Income Taxes. The provision for income taxes totaled $0.8 million, or 3% of revenue, and $0.1 million, or 1% of revenue, for the three month periods ending March 31, 2007 and 2006, respectively. This expense primarily relates to income taxes for certain of our foreign subsidiaries and the alternative minimum tax on our U.S. operations.

Operating Loss and Net Loss. Operating loss decreased 34% to $1.0 million, or 5% of revenue, for the three month period ended March 31, 2007 from $1.5 million, or 7% of revenue, for the three month period ended March 31, 2006. For the three month period ended March 31, 2007, our net income was $0.2 million, or $0.01 per share, on approximately 35.4 million weighted average shares outstanding, as compared with a net loss of $0.3 million, or $0.01 per share, on approximately 34.7 million weighted average shares outstanding, for the three month period ended March 31, 2006.

The improvement in operating loss was primarily due to increased revenue from organic growth, partially offset by (i) acquisition related expenses and (ii) increased other operating expenses. Net income was also positively impacted by increased interest income, partially offset by additional taxes. Additionally, net income in the first quarter of 2006 was positively impacted by the cumulative effect of change in accounting principle related to our adoption of SFAS 123(R).

Liquidity and Capital Resources

At March 31, 2007, the Company’s cash, cash equivalents and marketable securities were $185.7 million, compared with $170.1 million at March 31, 2006.

Cash used in operating activities was $1.2 million for the three months ended March 31, 2007, reflecting our net income of $0.2 million and non-cash expenses of $3.1 million, offset by cash used in working capital changes of $4.5 million. The non-cash expenses include $1.1 million for stock-based compensation, $1.2 million for depreciation and amortization of assets, $0.6 million for amortization of intangible assets and $0.2 million in other non-cash charges. Cash provided by operating activities was $1.8 million for the three months ended March 31, 2006, reflecting our net loss of $0.3 million and cash used in working capital changes of $1.3 million, partially offset by non-cash expenses of $3.4 million. The non-cash expenses include $1.2 million for stock-based compensation, $0.9 million for depreciation and amortization of assets, $0.6 million for amortization of intangible assets, $0.4 million related to the cumulative effect of change in accounting principle and $0.3 million in other non-cash charges.

Net cash provided by investing activities for the three months ended March 31, 2007 was $5.3 million, resulting from net sales and maturities of our short-term investments of $6.3 million, which was partially offset by the acquisition of property and equipment of $1.0 million. Net cash provided by investing activities for the three months ended March 31, 2006 was $16.3 million, resulting from net sales and maturities of our short-term investments of $18.1 million, which was partially offset by the acquisition of property and equipment of $1.8 million.

Net cash provided by financing activities totaled $0.9 million for the three months ended March 31, 2007, due to the exercise of options and the purchase of stock through our employee stock purchase plan. Net cash used in financing activities totaled $10.4 million for the three months ended March 31, 2006. In November 2005, we were authorized to repurchase up to $25 million of our common stock in the open market or in privately negotiated transactions. We completed this stock repurchase program in February 2006. During the three months ended March 31, 2006, cash paid in connection with this stock repurchase program was $11.6 million (including commissions). This was partially offset by cash provided by the exercise of options and the purchase of stock through our employee stock purchase plan.

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.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements (as defined in Item 303 of Regulation S-K).

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As of March 31, 2007, we had cash, cash equivalents and marketable securities of $185.7 million consisting of cash and highly liquid, short-term investments. 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 marketable securities in a variety of government and corporate obligations and money market funds. As of March 31, 2007, our investments had a weighted-average time to maturity of approximately 144 days.

Investments in both fixed-rate and floating-rate interest-earning instruments carry varying degrees of interest rate risk. The fair market value of our fixed-rate securities may be adversely impacted due to a rise in interest rates. In general, securities with longer maturities are subject to greater interest-rate risk than those with shorter maturities. While floating rate securities generally are subject to less interest-rate risk than fixed-rate securities, floating-rate securities may produce less income than expected if interest rates decrease. Declines of interest rates over time will reduce our interest income from our cash and cash equivalents and marketable securities and, accordingly, could adversely affect our net income and earnings per share. For example, if interest rates were to instantaneously increase (decrease) by 100 basis points, the fair market value of our total investment portfolio would decrease (increase) by approximately $0.5 million.

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) 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 the 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 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.

There have been no material developments with respect to previously reported legal proceedings.

Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2006, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 6. Exhibits.

Exhibit Number				Exhibit
2.1(1)				Agreement and Plan of Merger, dated as of February 5, 2007, among Nielsen Media Research, Inc., NTRT Acquisition Sub and NetRatings, Inc.
31.1				Certificate of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2				Certificate of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1				Certificate of Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2				Certificate of Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1) Incorporated by reference to exhibit number 2.1 to Registrant’s Current Report on Form 8-k dated February 6, 2007.

SIGNATURES

Pursuant to the requirements 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: May 10, 2007
	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

NETRATINGS INC 10-Q