Facebook Inc (NASDAQ:FB)-owned photo and video sharing platform Instagram last week signed a $100 million deal with advertising agency Omnicom Group Inc. (NYSE:OMC). The deal will allow the Madison Avenue ad agency to place ads for its clients on Instagram. Facebook acquired Instagram for about $730 million in 2012. At the time of acquisition, Instagram had only 15 million users. But today it has grown to more than 150 million active users.

Facebook Inc (FB): Instagram-Omnicom Deal Presents Upside Potential

Facebook’s attempt at Instagram monetization looks promising

It is Instagram’s first deal with a major agency. In November 2013, Goldman Sachs analysts Heather Bellini and Heath P. Terry estimated that Instagram will add $240-$485 million to Facebook Inc (NASDAQ:FB)’s revenue in 2014. The latest deal reinforces their estimate. The Menlo Park-based company launched ads on Instagram on October 3.

Bellini and Terry believe that ads on the photo-sharing platform are a big positive, which Wall Street was already expecting. Mark Zuckerberg has showed his expertise in finding a balance between advertisers’ demand and user experience. Instagram has been adding new features to improve the user experience. In December, the company unveiled Instagram Direct, which lets users send videos/photos directly to a group of followers.

Instagram likely to sign more such deals this year

Instagram said that users will continue to see high-quality photos and videos from select brands that already have a solid presence on the platform. The low ad-load approach would reduce the risk of user alienation. Moreover, Instagram will control ads in the user’s stream to ensure that they remain there for at least a day so that users can see it. According to AdAge, Publicis Group S.A. (ADR) (OTCMKTS:PUBGY) (EPA:PUB)’s unit Starcom MediaVest is also negotiating a deal with Instagram to place ads on the platform.

Goldman Sachs analysts said that the Omnicom Group Inc. (NYSE:OMC) deal has increased confidence that Instagram revenues will be in the range of their previous forecast. The analysts have a $69.80 price target on the stock. Since Instagram is not included in their current forecast, it represents upside potential (upward revision) for Facebook Inc (NASDAQ:FB). Goldman Sachs expects such agency deals to continue through this year.

Facebook Inc (NASDAQ:FB) shares rose 1.23% to $70.66 in pre-market trading on Monday.