Performance of the contract does not mean whatever they want it to mean. Here's the ICO FAQ on the GDPR (emphasis mine):

"The processing must be necessary to deliver your side of the contract with this particular person. If the processing is only necessary to maintain your business model more generally, this lawful basis will not apply and you should consider another lawful basis, such as legitimate interests."

https://ico.org.uk/for-organisations/guide-to-the-general-da...

> Funding by targeted ads isn't illegal last time I checked.

It is if you don't get consent. And you can't make that consent required to provide a service, since then it won't be "freely given", as per Article 7.