The news: Amazon’s ad business saw another quarter of exceptional growth, continuing its encroachment on Google and Meta’s ad duopoly.

• Advertising sales jumped 27% to $14.65 billion in Q4 2023, marking several quarters in a row that the retailer’s advertising growth has outpaced Meta’s (the social media giant’s Q4 ad revenues rose 24% YoY to $38.7 billion).

What drove 2023 growth: Amazon’s advertising business had an exceptionally strong year (and final quarter), fueled by new ad tools, credits that onboarded new advertisers, and strong interest in new ad formats on Prime Video.

• Amazon’s advertising growth was largely driven by increased adoption of retail media. The company captured 75.2% of the US retail media market in 2023, more than 10 times the share of No. 2 Walmart Connect. Thanks to retail media, Amazon’s 2023 ad growth outpaced Meta and Google combined, per our forecast.
• Video advertising was a priority for Amazon in the year’s latter half. Thursday Night Football hit viewership milestones in 2023 after a lackluster first year, driving significant advertiser interest. One leaked report showed Amazon expected $100 million from two new ad units centered on football.
• The company offered ad credits to entice new advertisers to join its various video platforms and launched an effort to create its own marquee football event on Black Friday. The game was called a “mini Super Bowl” by many, and though it under-delivered on expectations somewhat, Amazon was able to sell out 30-second advertising spots for $600,000 a pop.

The year of Prime Video: The launch of ads on Prime Video is likely to propel the retailer to become one of the dominant forces in video advertising.

• CEO Andy Jassy said the company has an “increasing conviction that Prime Video can be a profitable business on its own.”
• The stock market shares Jassy’s confidence. Morgan Stanley forecasts that Prime Video will generate $3.3 billion in advertising revenues in its first year and reach $7.1 billion by 2026.
• Prime Video’s initial offerings left advertisers wanting, but its large baked-in audience and CPMs (the cost per 1,000 viewers) that are driving down competing prices will likely lead brands to give the service a look sooner rather than later.

Our take: Thanks to retail media growth and video advertising opportunities, Amazon will soon be mentioned in the same breath as Google and Meta when it comes to digital ad market share.

• While recent earnings from Netflix showed that established companies are still on top in the video streaming world, they could soon be looking over their shoulders, too.