There's a reason the term ponzi scheme is being used by the business news, and it's not because they don't know how businesses work.
don't spend more money to aquire new customers
than the lifetime value of that customer.
It's entirely possible they are doing this, it's also possible they don't believe they are doing this.
Either way, they are making a lot of money and the early investors have already been paid off very well. So if this is the case why would they stop until they run out of new cities?
In the end, if after the IPO the business starts making money and that money gives a healthy return to the latest investors, everything is fine. If, on the other had, it turns out that the business model can't give a return on the investment and the latest investors lose their money, which was used to pay off the first investors, the mechanic of a Ponzi scheme is perfectly respected :)
it's unfathomable to me that it would be an attractive investment.
Fewer than most people think. Consider the financial model of a (successful) grocery store ostensibly losing a penny on each transaction. If you're clever, you can make plenty of money by arranging your contract terms carefully.