Take-Two Interactive's (TTWO 2.32%) stock price has cooled off following its 69% rise in calendar 2020. Slower growth in revenue has weighed on the stock this year, and it's down 28% year to date.  The stock is not likely going to move higher until growth picks up again.

Let's take a look at recent business trends and what the acquisition of Zynga brings to the table to determine how the stock might perform over the next year.

Growth in recurrent consumer spending

One of management's top priorities has been to grow recurrent consumer spending, or purchases of virtual currency, subscriptions, and other digitally delivered items sold to gamers while playing. Growth in these digital revenue streams has been a huge windfall for the industry over the last decade. It helps expand profit margin and extend the life of each title, which adds value for the company and gamer.

Over a year ago, Take-Two capped off a record year for in-game spending, increasing to 62% of revenue. In the annual report for fiscal 2021, management called recurrent consumer spending a "meaningful opportunity" as a high-margin growth driver. 

Take-Two has continued to execute against this strategic priority. As a percentage of revenue, recurrent spending has increased from 26% in fiscal 2017 ending in March to 65% in fiscal 2022 ending in March. 

A chart showing growth in recurrent spending from fiscal 2017 through fiscal 2022.

Through fiscal 2021, free cash flow more than doubled over fiscal 2017, showing how higher digital revenue is benefiting the company's profitability. However, free cash flow has dropped over the last year as management ramps up spending ahead of several new releases on the horizon.

Recurrent consumer spending is about to increase again. Management's current outlook for fiscal 2023 calls for recurrent spending to represent 77% of the company's total bookings, a non-GAAP (adjusted) measure of revenue.

Zynga will contribute significantly to Take-Two's business. In fact, management expects bookings from Zynga to total 45% of the combined business. That's more than double the bookings expected to come from Take-Two's biggest franchises, including Grand Theft Auto and Red Dead Redemption, which have contributed the most to Take-Two's growth in recent years. 

Zynga complicates the investment thesis

While Zynga fits Take-Two's strategy to grow recurrent spending and free cash flow over the long term, it also means Take-Two will be more dependent on mobile platforms, which can be more challenging to monetize than gaming consoles. 

One near-term headwind for Zynga has been the recent privacy changes from Apple, which protects iOS users from being tracked by advertisers without their permission. Advertising contributed about 20% to Zynga's revenue in 2021. 

Any weakness in advertising due to the weakening economic environment and privacy changes by Apple is a risk for Take-Two. Recent weakness in advertising reported by leading social media companies could spill over to mobile games and present new challenges for Take-Two's much larger mobile games business.

Don't expect a quick rebound in Take-Two's stock

If you're holding the stock for the long term, these obstacles shouldn't be concerning. Take-Two is well positioned for long-term growth. It has 49 new releases planned outside of mobile over the next three years, but investors will have to be patient with the stock's performance.

Wall Street likes to look ahead six to 12 months for near-term catalysts that can drive business growth. Zynga complicates the near-term outlook due to the mobile advertising headwinds. Plus, there are no major releases announced yet, such as a new Grand Theft Auto, that can serve as a big sales driver. 

Given that Take-Two's stock price already trades at a high price-to-free-cash-flow ratio of 34 based on management's fiscal 2023 guidance, the stock might be too expensive to give Wall Street a good reason to send it higher anytime soon.

The long-term investment thesis for Take-Two centers around profit margin expansion, as the company leverages Zynga's mobile development expertise with Take-Two's efforts to grow recurrent consumer spending. But it might take a few years before investors see significant results.