Zynga is shutting down 11 games soon as part of a cost-cutting measure, according to TechCrunch. The free-to-play games are either unpopular or are older titles that stopped monetizing well. Still, some of those, like PetVille (pictured above), had millions of fans once upon a time.

Zynga chief Mark Pincus announced 13 closures as part of a cost-reduction plan in November. At that time, Zynga only identified FishVille and Treasure Isle. But now the company has also notified players of shutdowns in other games. Besides PetVille, the list includes the mobile games Mafia Wars Shakedown, ForestVille, Mojitomo, and Word Scramble Challenge. On Facebook, the affected titles include Vampire Wars (shut down on Dec. 5), Montopia (shut on Dec. 21), Mafia Wars 2 (shutting Dec. 30), and Indiana Jones Adventure World, which is closed for new players and will close Jan. 14 for all.

At the PetVille page, players are greeted with this message:

“Thank you for supporting PetVille and for being a loyal player! We’re sorry to inform you that PetVille will be shutting down on Dec. 30, 2012. In place of PetVille, we encourage you to play other Zynga games like Castleville, Chefville, Farmville 2, Mafia Wars and Yoville. We appreciate your participation in PetVille as it helped make the game a fun place to meet and war with friends. As a loyal PetVille player, you are eligible for a one-time, complimentary bonus package in one of either Castleville, or Chefville, or Farmville 2, or Mafia Wars or Yoville. You can start the process by logging into PetVille and clicking on the “Redeem” button. Please note that this offer will be valid only until Dec 30, 2012.”

Zynga is offering the bonus package of free stuff in other games. PetVille had 1 million monthly active users, while Mafia Wars 2 had only 200,000 monthly active users, according to market analyst firm AppData. At the time that Zynga announced closures, the company also said it was cutting 5 percent of its work force. Zynga shares are trading at $2.39 a share, far below the initial public offering price a year ago of $10. A spokeswoman for Zynga confirmed the closings.

[Editor's note: I didn't link to actual TechCrunch story since my antivirus software flagged it for malware.]

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His departure comes shortly before Zynga’s planned $1 billion initial public offering, and means that he is likely giving up a substantial portion of his equity there.

Verba was responsible for Treasure Isle, a Zynga game launched in April 2010. It took off quickly, hitting around 28 million monthly active users at its peak, but began to decline quickly after that. The game now only has around 5.7 million monthly active users and lost around 1 million monthly active users between July and August.

Zynga reportedly had a harder time generating revenue from virtual goods sales in Treasure Isle, compared with healthy virtual goods sales in games such as FarmVille, Mafia Wars, Zynga Poker and more recent titles. A Zynga spokesperson would not comment on Verba’s departure when contacted by VentureBeat.

Verba worked at the company between December 2009 and June 2011. That he has vested a little under 40 percent of the total options he was offered in Zynga when he started working at the company. Zynga employees vest 25 percent of their shares after the first year of working there, plus an extra 1/48th of their shares each subsequent month.

With Zynga filing for an initial public offering, eHarmony would likely have to offer an incredible deal to pull Verba from the blazing social gaming star. Zynga is looking to raise up to $1 billion in its IPO and has a valuation somewhere between $10 billion and $20 billion — putting it well ahead of Electronic Arts, one of the largest game publishers in the world with a market cap of $6.4 billion. The upper valuation would put it ahead of Call of Duty and World of Warcraft publisher Activision-Blizzard, which has a market cap of just more than $12 billion.

By comparison, eHarmony is a private dating site that has raised around $110 million in funding, according to filings with the securities and exchange commission. Even at the CEO position, it’s unclear how lucrative the deal is compared to what Verba would get had he stuck around through Zynga’s initial public offering. Match.com, a dating site owned by Barry Diller’s InterActive Corp, acquired another dating site called OkCupid for $50 million earlier this year. Those are pretty small exits compared to the bombshell Zynga is about to unleash on the public markets.

Zynga is mostly known for its major hits on Facebook. That includes the likes of Farmville, which is still the sixth most-used app on Facebook with 33 million monthly active users. Its latest game, Empires & Allies, has around 44 million monthly active users and its city-building game Cityville has 77 million monthly active users.

Both games are losing users after an initial pop in monthly active users, but that’s pretty normal for a game company. Cityville gradually lost around 10 percent of its monthly active users between July and August, while Treasure Isle lost nearly 18 percent between July and August. The number of monthly active users for Empires and Allies fell around 10 percent too, but the number of monthly active users has leveled off for the past several tracking periods, according to AppData.

The company has a lot of games that aren’t as huge as Cityville and Empires and Allies, but even those games have large player bases when compared to Treasure Isle. Frontierville, a Farmville spinoff, has more than 11 million monthly active users while Texas Hold ‘Em poker has around 35 million monthly active users.

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Zynga is currently valued at $5.27 billion on SharesPost, a secondary market, where Zynga employees can sell shares that they own in the private company. Redwood City, Calif.-based EA is worth $5.24 billion in public trading on the Nasdaq stock market. The SharesPost listings are thinly traded compared to EA’s stock, but it is perhaps the only real measure of the value of Zynga’s stock at any given moment. Many hope that Zynga will go public, but it hasn’t done so yet.

Serial entrepreneur Mark Pincus (pictured in center) started Zynga four years ago to make Facebook applications. Starting with Texas Hold Em Poker, Zynga managed to grab lots of users on Facebook and figured out how to make money from a small percentage of them. Adopting the “virtual goods” business model pioneered by South Korea’s Nexon for online games, Zynga charged real money to players for virtual currency, which was used to buy poker chips and other virtual goods in Zynga games. Now, thanks to virtual goods sales, Zynga is expected to grab roughly a third of the $1.6 billion market for virtual goods in the U.S. in 2010, according to Inside Network.

Zynga really took off in the middle of 2009 when it launched FarmVille, which is still the No. 1 game on Facebook with 57.4 million monthly active users, according to AppData. With such popular market-leading games, Zynga can cross-promote its titles and advertise them as well, allowing it to turn lots of its games into huge hits. In addition to FarmVille and Texas Hold Em Poker, FrontierVille, Mafia Wars, Cafe World, Treasure Isle and PetVille all have more than 10 million users. Overall, Zynga has 214.5 million users.

CrowdStar is a distant No. 2 at 54.2 million monthly active users, and EA is No. 3 at 44.7 million users. These numbers fluctuate dramatically and are all down since Facebook cracked down on game message spam in the spring. EA bought Playfish for $400 million in the fall of 2009, but it hasn’t been able to close the gap against Zynga, which has been No. 1 for a long time.

EA’s market value has dropped this year. The company lost its title as the largest independent maker of video games to Activision Blizzard, which has titles such as World of Warcraft to fuel its growth. But EA is no slouch when it comes to online games. Digital online businesses at EA are expected to generate $750 million in revenue in the current fiscal year, or around 20 percent of overall revenue. That means EA’s online game revenue is significantly bigger than Zynga’s online game revenue (which, of course, is all of Zynga’s revenue).

Yet the market values Zynga as equal to EA in market share? Does this mean the market discounts the rest of EA’s nearly $3 billion or so in traditional video game console and PC game revenues? If so, then Zynga is truly overvalued.

It’s also interesting to compare Zynga’s value to one of its arch rivals in the social game market, Japan’s DeNA. DeNA has come on strong in the Japanese social mobile game market. It recently outbid Zynga to buy iPhone game publisher Ngmoco for $400 million. DeNA’s market capitalization in Japan is around $3.6 billion. But the company says its revenue run rate is currently around $1 billion. So DeNA’s revenue is likely bigger than Zynga’s (Zynga does not disclose its number). So Zynga’s stock is overvalued by that comparison as well. Yet another comparision: Activision Blizzard is valued at more than $13 billion.

Does that mean Zynga isn’t worth the current price people are paying on the secondary market? Perhaps. But there’s no question Zynga is at the center of the storm and has one of the most enviable positions in the game market today. That’s a remarkable achievement, considering EA is more than 28 years old and Zynga is less than four. Zynga’s valuation is not based on current revenues alone, but on its momentum in a fast-growing market. EA doesn’t have that momentum. And DeNA has momentum in the fast-growing social mobile game market in Japan, but it is only getting starting in social games in the U.S.

[photo credit: Fortune]

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SecondShares.com noted that Zynga’s six major Facebook games all lost traffic last week.

Thankfully, Treasure Isle, launched just last month, has been rising like a rocket. Last week, it added 4.2 million monthly active users, and today it stands at 26.8 million. Treasure Isle, a game where you dig up hidden objects on islands, is now the seventh most popular Facebook game and has passed up other Zynga hits Mafia Wars, PetVille and FishVille.

Farmville declined in monthly active users to 77 million, down more than 2.3 million. That game, the most popular on Facebook, is now 18 percent below its peak of 32.5 million daily active users. (The figure refers to the number of players who return to the game on any given day). Zynga’s Cafe World fell by 1.3 million monthly active users, and FishVille fell by 1 million monthly active users.

Such big swings in the number of users shows that Facebook gamers are fickle. And perhaps many of Zynga’s long-term users are now moving on to its new games. Still the swings on a weekly basis should not be over-interpreted. All of Facebook’s top 10 games lost traffic last week, except for Treasure Isle.

SecondShares, which evaluates the value of hot private companies and placed Zynga’s value at about $5 billion, also pointed out that Zynga is very dependent on Facebook, and the latter continues to make big changes to its platform that could affect traffic. Clearly, the social game business isn’t good for people who don’t like roller coasters.

Although it’s still the most successful Facebook game company, four of Zynga’s six major games have been losing traffic, according to SecondShares.com. (More about that in our story about Zynga’s $5 billion valuation.) Another recent game, Poker Blitz, hasn’t done that well in its first three weeks.

Treasure Isle is taking off faster than the company’s FarmVille game, which has 83 million monthly active users (according to AppData) and remains by far the biggest hit on Facebook. And Treasure Isle is managing to grow fast despite Facebook’s recent restrictions on viral growth channels — and despite the fact that Zynga hasn’t even fully launched its cross-marketing programs where it uses one game to sell another.

Treasure Isle lets users hunt for buried treasure on an island under a time limit. Hidden object games are huge hits on sites such as Big Fish Games. Zynga’s strategy is to move down the list of genres to make sure it has the big game categories covered: farms, check (FarmVille); fish, check (FishVille); mafia, check (Mafia Wars); poker, check (Texas Hold ‘Em Poker), etc.

Jeremy Verba, general manager for the Treasure Isle game, told Inside Social Games that the title has strong engagement, meaning players play for a long time and come back often. The game is hugely important for Zynga, which needs to keep running on the treadmill.

The game may be a clone of Treasure Madness (which has around three million monthly active users), but then again, FarmVille was a clone too, of the less successful original Facebook game, FarmTown.

The next major test is to see how long players will stick with Treasure Isle and how well the game monetizes. Of Zynga’s many games, a handful of the titles — Mafia Wars, FarmVille, and poker — provide the bulk of revenues.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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