The Nasdaq Composite has rebounded 37% this year. It could be the start of a new bull market, which tends to come along with improving business prospects for industry leaders.

Take-Two Interactive (TTWO 0.72%) is one of the leading game companies with more than $5 billion in annual revenue. Strong sales of Grand Theft Auto V, NBA 2K23, and other titles kept the company afloat in a year that saw a slight decline in industrywide spending amid inflation and other headwinds in the economy.

As those headwinds fade, Take-Two stock could be on the verge of a major bull run over the next several years. The stock is already outperforming the market, up 45% this year. Take-Two is outperforming the market and its competitors, but there are three reasons why more gains are in store.

1. Industry growth

The video game industry has been growing for half a century. The next leg of growth will come from increasing access to games around the world through cloud gaming subscription services and mobile platforms.

There are currently 3.1 billion video game players across console, PC, and mobile devices, according to Statista, and it's expected to grow by another 400 million through 2027. 

Take-Two is aiming to meet more gamers through its expanding portfolio of titles. The company has 36 new titles planned for release through fiscal 2026. Many of these releases are new iterations of existing titles, which have established player bases and lowers the risk of producing a flop.

The company's early guidance for fiscal 2024 calls for adjusted revenue, or bookings, to grow about 4% year over year, but that should accelerate from there. Management is targeting record bookings of $8 billion by fiscal 2025, up from $5.3 billion last year. This implies blockbuster sales from the next release in the Grand Theft Auto series, where the current release has sold more than 180 million copies since 2013 and been responsible for much of the company's growth.

2. Mobile gaming opportunity

Mobile will play a bigger role in the company's growth over the next decade. Last year's acquisition of Zynga gives Take-Two a strong foothold in this fast-growing market. Mobile games generated most of the industry's sales in 2022.  

Zynga generates most of its revenue from in-app purchases and advertising. The weakness in the advertising market pressured Zynga's business, which generates nearly a third of its bookings. However, strong earnings reports recently from Meta Platforms and Alphabet signal that a rebound in digital advertising could be underway.  

Zynga reported growth in ad revenue quarter over quarter in the fiscal fourth-quarter earnings report. A recovery should kick off substantial growth over the next decade for Take-Two in mobile advertising. In-game advertising is a $32 billion market, according to Statista.

3. Expect some surprise hits

Take-Two is benefiting from more players spending time with the biggest games. Market researcher Newzoo estimates that two out of three gamers played on a PC or console last year. These platforms are dominated by immersive games that require lots of resources to bring to market. 

Considering these trends, Take-Two CEO Strauss Zelnick is not just throwing money at new game development. Instead, he wants the company to focus on quality, and this approach has already turned out at least one surprise hit in recent years. The Outer Worlds reached over 5 million units sold a few years ago and now ranks as one of Take-Two's bestselling individual titles in the company's history. 

Take-Two's focus on quality is also leading to growth in its blockbuster franchises. The annual releases in the NBA 2K series are regularly selling more than 10 million copies per release since Strauss Zelnick took over as CEO in 2011, up from just 2 million sold units per year over a decade ago. Grand Theft Auto has experienced similar growth.

For these reasons, Take-Two nearly doubled its revenue between fiscal 2017 and fiscal 2022, driving its stock up 159%. With industry sales on the verge of recovering, now's a good time to consider jumping on board. Shares of this top entertainment company are still selling at a discount to their previous peak.