Demand is slowing in the video game industry, but Take-Two Interactive (TTWO -0.94%) is finding ways to expand anyway. The company behind big global franchises like Grand Theft Auto and Red Dead Redemption recently lifted its financial outlook following a strong start to fiscal 2023.

If you're considering buying the stock, there are still some big risks to know about, including the potential for delayed product releases or challenges integrating the new Zynga business. But there are also many ways in which the stock could generate strong returns for investors over the next several years.

Let's take a closer look.

Growing quickly

Take-Two's sales growth received a shot in the arm with the acquisition of the Zynga franchise. Sales this past quarter rose 41% to $1 billion as the company began to profit from sales of hit games like Words With Friends and Empires & Puzzles.

Yet the better news for long-term investors is that Take-Two is winning market share across many competitive niches. Sales in its core business grew faster than management predicted, thanks to strength in franchises like NBA 2K and Grand Theft Auto.

Take-Two's expansion rate beat Microsoft's gaming division and outpaced Electronic Arts in recent months, too. Continued market share gains in this attractive industry make it more likely that shares will trounce the market.

More ways to profit

Video games are becoming more valuable entertainment properties, and Take-Two is ready to capitalize on those shifts. Its subscription-based spending jumped 48% this past quarter and now accounts for nearly 75% of the entire business, making the company more of a software-as-a-service provider. That's great news for investors seeking more stable earnings growth and cash flow.

Take-Two executives are also excited about mobile gaming, with Zynga likely contributing over $500 million of annual revenue over time. That success would put the company on par with EA's stellar mobile-gaming segment, which generates solid profits on its own while lifting sales for bigger gaming titles on the PC and console platforms.

"We remain exceedingly optimistic about the long-term growth potential for the mobile industry," CEO Strauss Zelnick told investors in early August.

The big risks ahead

There's no shortage of risks ahead, including slowing demand for digital entertainment in the wake of the pandemic. Take-Two also has a bigger pipeline of games in development than it has ever had, which raises the potential for product delays or poor execution around a key launch. Activision Blizzard had to delay several big games this year, after all, and a similar move would pressure Take-Two's stock.

But that pipeline looks solid, heading toward the key holiday shopping period in late 2022. And Take-Two's expanding catalog gives it many ways to grow the business toward $10 billion in annual sales from its current perch of around $6 billion.

Management just lifted the short-term outlook after a strong start to fiscal 2023. But investors should be more excited about Take-Two's potential in 2024 and beyond. The company has been overshadowed by peers like EA and Activision in recent years, but its diverse portfolio of hit brands is allowing it to stand out in the competitive and lucrative gaming space.