Google likely to feel loss of 'acting CEO,' say analysts

Google may have delivered strong financial results on Thursday, but the unexpected departure of executive Nikesh Arora is a significant loss for the company, according to several analysts.

In a surprising move, Arora, Google's chief business officer, announced that he is stepping down to join Softbank as vice chairman.

Arora, who joined Google in 2004, oversaw all of the company's revenue and customer operations. More simply, his job was to find ways to make money from Google's products.

Google Chief Business Officer Nikesh Arora, left, and CEO Eric Schmidt attend the Burda DLD Nightcap 2011 in Davos, Switzerland.
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Google Chief Business Officer Nikesh Arora, left, and CEO Eric Schmidt attend the Burda DLD Nightcap 2011 in Davos, Switzerland.

Analysts said Arora was effectively "the acting CEO" and was a critical leader in Google's executive management team. And Arora was the executive responsible for much of the search giant's strong financial performance.

Analysts who cover Google said that Arora's responsibilities were similar to a CEO's: Understanding the ins-and-outs of Google products, establishing strategic partnerships and navigating the needs of advertisers, users and developers. Google CEO Larry Page, while providing a vision for the company's future, is not focused on day-to-day management, and analysts say he's not involved in the nuts and bolts of sales, marketing and advertising issues.

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Arora also played a central role in many different areas of the company, from YouTube to Google's recent major acquisitions of Nest and Dropcam.

"It is a loss," said one financial analyst covering the company, speaking of Arora's departure. "He was a talented executive." And Google's loss is Softbank's gain. Arora will be the CEO of the Japan-based company's Internet and media operation, and vice chairman of the overall company.

So why did Arora leave such a prestigious and influential position at Google?

Not likely compensation. In 2012, Google made Arora its highest-paid executive, with a total compensation package of more than $51 million, according to tech news site Re/code. (CNBC's parent company NBCUniversal has a minority stake in Re/code.) Google did not respond to a request for comment.

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Interestingly, Arora's pay package included an $8 million cash bonus that he agreed to return if he departed Google before April 2015. But Google then waived that requirement in a filing with the SEC. Analysts said it is a clear sign that Google's top management and board of directors intend to maintain a strong relationship with Arora and his new employer, Softbank.

For now, Omid Kordestani, Google's business founder, who led the company's sales team for many years, will be stepping in for Arora. The question for investors and analysts is who the company will select as his permanent replacement. And will Kordestani assume the permanent position of chief business officer? It also isn't clear if Google's troika of Page, Sergey Brin and Eric Schmidt will promote executives internally, or seek a high-profile talent from outside the company.

Certainly, Google employs many talented executives from Sundar Pichai, its Android chief, to Susan Wojcicki, YouTube's boss. But analysts said Arora's skill set is unique and difficult to replicate. Google's ultimate answer, analysts said, could be to rethink the role of chief business officer altogether.

"There is a hole there now," said one analyst. "They need to figure out how to fill in those missing parts."

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While it will be a big challenge to replace Arora, Google's financial position remains strong. It reported net sales that rose 25 percent from a year earlier to $12.7 billion after traffic-acquisition costs, well ahead of Wall Street's expectations. The company added 2,400 employees in the most recent quarter, and now has more than 48,500 staff, up 21 percent from a year earlier.

—By CNBC's Mark Berniker and Josh Lipton