Updated from 8:15 a.m. Shares of specialist firm LaBranche ( LAB) surged Friday, despite another disappointing earnings report, as investors believe the company can turn profitable by slashing expenses. On an operating basis, LaBranche lost $1.8 million, or 3 cents a share. But the stock rallied after CEO Michael LaBranche told investors during a conference call that the firm plans to slash expenses and is finding ways to prosper from the New York Stock Exchange's move to electronic trading. LaBranche's profits have tumbled the past few years as it floor-based execution specialists have lost market share and the firm finds fewer opportunities to trade its own capital in an increasingly electronic market place. But for the moment, investors are willing to give LaBranche the benefit of the doubt. Shares, at midday, were up 76 cents, or 8%, to $9.76. It's not clear, however, if that optimism is warranted based on the firm's fourth-quarter earnings report, which reveals that LaBranche is turning into a giant holding company for shares of the parent of the Big Board. The once-powerful trading firm says a pretax gain in the value of its restricted shares of NYSE Group ( NYX) accounted for about 60% of the $118.6 in revenue LaBranche generated in the fourth quarter. The paper appreciation in the value of those shares helped LaBranche more than double its net income in the fourth quarter. But without the revenue boost from the increased value of those shares, it was another woeful quarter for LaBranche on an operating basis. The net income numbers are impressive. The firm earned $39.1 million, or 63 cents a share, compared with $17.4 million, or 28 a share, a year earlier. Total revenue rose 48% Yet the operating numbers at LaBranche, which has been hit hard by the NYSE's rapid move to electronic trading, tell the real story. Stripping out the $72.3 million gain in the value of the firm's restricted shares, LaBranche lost $1.8 million, or 3 cents a share. Net revenue -- less the restricted stock gain -- totaled $46 million, down from $80.5 million. The year-ago fourth quarter did not include a similar restricted stock revenue gain because the New York Stock Exchange did not go public until last spring. The fourth-quarter results also include restructuring charges of $3.7 million and a net benefit of $1.9 million due to a decrease in the firm's tax and legal contingencies.