Dive Brief:

• Amazon's advertising revenue rose 51% to $5.4 billion in Q3 from a year earlier as marketers sought to reach the e-commerce giant's customers while they shopped online. The growth in ad sales was greater than Amazon's total revenue gain of 37% to a record $96.1 billion, a sign that the upcoming holiday shopping season could be the biggest ever for the company, according to an announcement.
• "We're seeing more customers than ever shopping early for their holiday gifts, which is just one of the signs that this is going to be an unprecedented holiday season," Jeff Bezos, Amazon founder and CEO, said in a statement.
• Amazon's physical stores, which include the Whole Foods Market chain of grocery stores, saw a 10% decline in sales to $3.79 billion, a sign of how shopping habits have changed during the health crisis. Subscription revenue, which includes the fees that people pay for Amazon Prime memberships, audiobooks, digital video, digital music and e-books, rose 33% to $6.57 billion as people shopped online or consumed more electronic media while stuck at home.

Dive Insight:

Amazon's ad revenue growth was stronger in Q3 than in the prior quarter, when it reported a 41% yearly gain, as marketers began to spend more heavily on digital advertising after canceling or delaying campaigns at the pandemic's onset. The faster growth indicates that many marketers recognized a need to ramp up ad spending on Amazon to reach homebound shoppers when they were most ready to buy products. Amazon advertising includes sponsored products in search and display ads to reach audiences based on their likely purchase intentions, while the e-commerce retailer's trove of first-party data about millions of customers helps with ad targeting.

Its strong ad revenue growth is likely to continue into the holiday season, if recent metrics are any indication. The company anticipates total revenue will grow anywhere from 28% to 38% in Q4 as consumers continue to show a greater preference for online shopping. More than half (52%) of U.S. shoppers plan to visit Amazon first for their holiday shopping, while 42% plan to buy most of their gifts through its site, a survey by software company Episerver found. With those shoppers crowding onto Amazon's site, marketers likely will boost ad spending and other promotional activities to grab their attention.

Ad spending across e-commerce sites has been growing quickly during the pandemic, according to a recent report from eMarketer, which forecasts e-commerce channel advertising to represent 12.2% of all U.S. digital ad spending by the end of this year. Amazon is the dominant player by far, a role eMarketer expects it to hold onto even as other players like Walmart grow their share of ad spend. The growth rate is expect to slow for ad spending on e-commerce sites after this year.

Amazon's ad revenue growth this year helps to solidify its place as the third-biggest digital ad platform in the U.S. behind Alphabet's Google and Facebook, which also saw growth in Q3 as marketers increased spending.