It's official. Take-Two Interactive (TTWO -0.94%), the company behind console and PC gaming hits like Grand Theft Auto, now owns the Zynga catalog packed with franchises like Words With Friends and Empires & Puzzles.

Take-Two's management team is bullish about the acquisition, which closed in the first half of 2022. The business could deliver at least $500 million of annual revenue in time, after all, and puts the company in better position to compete against the likes of Electronic Arts and Activision Blizzard.

But should investors load up on Take-Two's stock now or pick those more established developers to gain exposure to the industry?

Getting faster growth

Now that Zynga is in the fold, Take-Two's portfolio looks more like its main video game peers. It has a big sports presence with the 2K franchises, just like EA. The first-person adventure and shooter brands including Borderlands and Red Dead Redemption attract engagement among fans of Activision's Call of Duty. And now it maintains several of the top-grossing mobile games to challenge Activision's big franchises like Candy Crush.

Those assets position Take-Two as well as any business to capitalize on the massive market for interactive entertainment, which was powered by 3 billion gamers spending over $220 billion in 2021.

Yet for the stock to deliver great returns for investors, the company will have to deliver market-beating sales growth. That seems to be the case for fiscal 2023, with bookings projected to approach $6 billion compared to $3.4 billion last year. Much of that growth will come from the new Zynga segment. But Take-Two is also expecting to boost its core business even after last year's big gains.

Monetization trends

CEO Strauss Zelnick and his team are targeting much higher profit margins over the long term, and luckily investors don't have to simply take management at their word on this point. Subscription-based revenue was up 48%, thanks to big contributions from NBA 2K22 and Top Eleven.

Gamers are spending more on things like digital season passes, helping make video games more of a software-as-a-service business, which first shows rising cash flow before a steady boost in earnings.

EA Operating Margin (TTM) Chart

EA Operating Margin (TTM) data by YCharts

So far the Zynga acquisition, plus extra spending on new releases, has clouded that profitability picture. Take-Two's margins are lower than both EA's and Activision Blizzard's.

The good news is that these cost pressure shouldn't last long. Within the next fiscal year, in fact, Take-Two is expecting to see a positive contribution from the Zynga portfolio. Meanwhile, video game investors will see Take-Two's busiest release schedule yet over the next several quarters.

If you aren't convinced that the company will have several hits among those launches, or if you're worried about a big drop in consumer spending ahead, you might want to wait before buying Take-Two stock.

On the other hand, investors who buy the stock today have a good chance at getting a deal. Take-Two is valued at about four times annual sales, a relatively low multiple that implies market share losses or profitability struggles over the next few years. If Take-Two can avoid those pitfalls, the stock might just send your portfolio to a higher level.